New Delhi: The government’s draft bill to regulate cryptocurrency was not introduced in the winter session of Parliament as the Centre continues its deliberations on methods to oversee virtual currencies, for which no framework exists so far, officials familiar with the matter said.
“Banning cryptocurrency would prove to be very difficult as one can not even determine who is the originator is,” an official familiar with the discussions said. “People can simply use a VPN to access currencies without alerting any authorities,” the official said.
The official added that the government continues to consider all its options, even as the Reserve Bank of India is working on its own digital currency. The proposed bill is titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”, and may provide some leeway as opposed to the last draft, where a complete ban was proposed.
Cryptocurrencies use methods of encryption in the trading of monetary units. Some of the most prominent such currencies include Bitcoin and Ethereum, but many other diffused ones have also proliferated across the world.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, building on a previous version, initially aimed to ban private cryptocurrency operators, and simultaneously empower the RBI to issue what are known as central bank digital currencies (CBDC), which in India’s case are likely to be Digital Rupees.
Experts and key bodies have, however, favoured a tightly controlled cryptocurrency regime in India over a blanket ban which will have strict transaction protocols and also the imposition of taxes to help the government generate revenue.
India’s crypto journey
The country first began exploring cryptocurrency regulation in 2017, when an inter-ministerial committee was set up to explore methods to regulate virtual currencies. The committee then consisted of Subhash Chandra Garg, secretary, department of economic affairs, Ajay Prakash Sawhney, secretary, ministry of electronics and information technology, Ajay Tyagi, chairperson, SEBI and BP Kanungo, deputy governor, RBI.
“The Committee studied the domestic and international scenario including the various initiatives taken by other governments and regulators, and analysed reasons impacting its growth in understanding the trajectory of regulation and development in virtual currencies. The task of putting together the key issues, global experiences, challenges faced by industry and policy options thereon, developing the rationale for the final recommendations would not have been possible without the efforts of the members of the Committee and all those who enriched the discussion,” Garg said in the report. “The Committee was ably supported by the research work of the Macro/Finance Policy team comprising Aditya Rajput, Anirudh Burman, Ashish Aggarwal, Bhavyaa Sharma, D. Priyadarshini, Jai Vipra, Nelson Chaudhuri, Radhika Pandey, Shivangi Tyagi and Sumant Prashant at the National Institute of Public Finance and Policy. I appreciate and acknowledge their contribution to this report.”
The committee in 2019 recommended a complete ban on virtual currencies as they were not accepted as legal tender in any jurisdiction. “The Committee notes with serious concern mushrooming of cryptocurrencies almost invariably issued abroad and numerous people in India investing in these cryptocurrencies. All these cryptocurrencies have been created by non-sovereigns and are in this sense entirely private enterprises,” the committee found. “There is no underlying intrinsic value of these private cryptocurrencies. These private cryptocurrencies lack all the attributes of a currency. There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor they are a medium of exchange.”
The Committee further added that these currencies have demonstrated extreme fluctuations in their prices. “Therefore, the Committee is of clear view that the private cryptocurrencies should not be allowed. These cryptocurrencies cannot serve the purpose of a currency. The private cryptocurrencies are inconsistent with the essential functions of money/currency, hence private cryptocurrencies cannot replace fiat currencies,” the committee said in its recommendations. “The Committee recommends that all private cryptocurrencies, except any cryptocurrency issued by the State, be banned in India.”
The draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019, endorsed the committee’s view and proposed the imposition of strict fines on violators.
Experts favour regulation
A note prepared by CII for Indian parliamentarians, submitted to the standing committee on finance, maintained that a “balanced and thoughtful regulatory approach to crypto/digital tokens needs to be evolved in India.” The industry body argued that a “regulatory toolbox should accept, not reject and outlaw, the new world of crypto/digital tokens.”
Similarly, IIM Ahmedabad’s public policy alumni special interest group suggested to lawmakers that “Cryptocurrencies should be regulated, not banned”. Their presentation argued, that “regulation helps highlight and address issues or gaps, banning will push it underground.”
According to Kazim Rizvi, the founder of the policy think tank The Dialogue, there is a need to regulate cryptocurrencies. “We believe that crypto should be regulated. The news of the government delaying the introduction of the Crypto Bill in parliament is positive. It underlines the government’s desire to further improve the Bill,” he said.
The specific contents of the Bill are unclear at this point, and people should steer away from speculation-led panic. The main concern that the government has communicated is regarding investor protection. This is a crucial aspect of the upcoming regulatory framework, and the government is looking at various aspects under this, including consumer education, KYC verification and Anti-Money Laundering (AML) measures,” Rizvi said.
He added that it was important for the government to uphold its commitment towards a consultative approach. “This is critical given that the Crypto Bill is likely to not emerge under a rigid framework — it will continue to change in real-time amid an evolving global landscape around the regulation of this sector,” he said. “Given the young, growing investor base, and the rise of Indian crypto unicorns, there is a lot of economic potential to tap into. Legalising the trading of crypto assets will help diversify the choice basket of individual and institutional investors’ asset portfolios. A robust framework will also help incentivise the growth of long-term, well-informed investors, helping reduce the volatility in crypto assets.”