India Must End Ambiguity Over Cryptocurrencies As US Legalises Stablecoins

In a sign that July GST collections are likely to be more robust than the anaemic June figures, the call money rate and weighted average tripartite repo rate went up in India, as banks saw the demand for funds go up, to pay GST dues to the government. The Purchasing Managers’ Indices for services, manufacturing and composite activity all signal growth, although this is yet to reflect in credit growth.

US president Donald Trump continues to announce tariff deals with other countries on his own social media platform, Truth Social. Indonesia and the Philippines have agreed to duties of 19% on their goods exported to the US and Japan, 15%. Auto exports from Japan will face a 15% duty in the US, instead of the sector-specific tariff of 25% that Trump had announced earlier.

Tariff Baloney

Trump has been claiming that the import duties he announces would be paid for by the exporting country. This, of course, is total baloney, and a token of the contempt Trump has for the intelligence of his support base.

Import duties are borne by the importer. If there is some scope for the importer to bargain with the exporter to share a part of the duty burden, that would be luck. Normally, the export price would already have been beaten down to the barest minimum that justifies any business with the US buyer, leaving little room for the exporter to slash costs any further. Import duties would add to the cost of the product and raise prices.

US inflation has so far been only inching up, and not reflecting the big tariffs Trump announced on April 2, his so-called Liberation Day. This is because front-loaded imports at old tariffs are still being retailed, the so-called reciprocal tariffs have not yet been imposed, and only the 10% base tariff is in place for countries that are yet to reach a trade deal with the US.

The US Fed has refused to cut rates, in spite of the president’s oft-voiced desire that it should, because of the prospect of tariffs kicking in on August 1, and huge budget deficits stoking inflation.

India Must Catch Up

The US Congress has passed the Genius Act, which gives legal backing to stablecoins, cryptocurrency whose value is linked to a regular fiat currency, mostly the dollar, and whose issuer invests in liquid assets equal in value to the value of the cryptocurrency issued.

This law was already cleared by the Senate and now only requires the president’s signature to become law. The message is that India would be well-advised to end its ambiguity over the validity of cryptocurrency and legalise stablecoins, including the one issued by the central bank.

Large US banks already use private digital currencies to move client funds across continents, bypassing the cumbersome SWIFT system. With the backing of the Genius Act, they would be able to issue stablecoins that can be used by third parties, as well.

Congress has also passed the Clarity Act, which clarifies the rules for trading of cryptocurrencies and places them under the supervision of the Commodity Futures Trading Commission, rather than under the Securities and Exchange Commission (the US has an inefficient, archaic system of split regulation of securities and commodities, and of spot and forward markets). This has to pass through the Senate, which does not, so far, have a unified view on the subject.

A third bill prevents the US from issuing a central bank digital currency (CBDC), most curiously. As more and more cross-border capital flows take place on the blockchain, the absence of a digital dollar would constrain the US and help countries like China that have their own CBDCs. The ability of the US to weaponise the dollar, for example, by denying countries access to New York’s dollar networks, would come down as the share of non-dollar digital currencies in cross-border payments rises.

PayPal For The Hoi Polloi

PayPal, the American online payment system in operation since 1998, has tied up with India’s Unified Payment Interface and its operator, the National Payments Corporation of India Ltd, to help Indians fill the PayPal wallet using UPI, to make payments abroad.

While most Indians who wish to make cross-border payments already have credit cards, which can be used to fill the PayPal wallet, this potentially expands the base of PayPal users to the hoi polloi.

The US has announced its decision to withdraw from the UN’s Educational, Scientific and Cultural Organisation (UNESCO), because it promotes values inimical to the Trump administration’s, such as sustainability, diversity, and inclusion. UNESCO is on the side of creating a separate state for Palestinians, while the US continues to help Israel with its ongoing genocide in Gaza, with systematic denial of food and medical care to the general populace, and continued bombing of civilian areas.

Climate Realities Get Closer

The year that has gone by, 2024, has been certified as the hottest year since records started being kept. The European Union’s official climate tracker, the Copernicus Climate Change Service, reckons that the average global surface temperature in 2024 was 15.10 degrees Celsius, 1.60 C above preindustrial levels, in breach of the Paris Climate Accord target to keep temperatures contained 1.50 C above preindustrial levels.

Australia has announced the world’s first climate visas for Pacific Island nations that are likely to be submerged, as global warming melts polar ice caps and ocean levels rise. On July 25, as you read this, Australia will open the result of the lottery it has instituted to select 280 of the 4,000-odd residents of Tuvalu, who have registered for a chance to get a climate visa each year. These visas allow the holder to enter and live in Australia without a job offer and secure health insurance.

Hindi Chini Bhai Bhai?

New Delhi has started issuing tourist visas to Chinese nationals, in the thaw in bilateral relations, four years after the Galwan clash between Chinese and Indian troops along the Line of Actual Control. Relations had cooled to freezing in the wake of that clash. Earlier, Indian and Chinese flights had resumed between the two countries. This is welcome.

Not so the Niti Aayog proposal to let Chinese entities invest in Indian companies, taking minority stakes of up to 24%, without national security vetting. It is not the size of the stake that should determine the desirability or otherwise of Chinese ownership and control in Indian companies. Rather, it is the national security relevance of a sector in which Chinese investment is proposed that should determine how welcome such foreign ownership and control would be.

If foreign ownership, even if only of a minority kind, leads to technological dependence via import, in key sectors, FDI in such sectors should be prohibited, and Indian innovation encouraged to create the needed capacity.

In the entire range of electronics, in which India’s dependence on external suppliers is near total, India needs to substitute foreign-made and foreign-licensed products with India-owned technology and India-made products. However, in consumer goods and services, it would make sense to permit Chinese investment without constraints.

Strategic autonomy is built on the basis of acquiring and nurturing indigenous capacity in vital sectors, not by creating fancy rules for calibrating the extent of foreign investment on a sliding scale.