Blog

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 would propose to ban all private cryptocurrencies with few exceptions

The MoS Finance said that the Centre last month received a proposal from RBI to widen the definition of ‘bank note’ to include currency in digital form

BACC last week said that a blanket ban on crypto will encourage non-state players and lead to higher unlawful usage of such currencies

As the government is set to table the much anticipated cryptocurrency bill in the ongoing winter session of the Parliament, the Minister of State for Finance, Pankaj Chaudhary has said that the government does not collect data on cryptocurrency transactions.

In a written reply to a question in Lok Sabha, the minister noted that the virtual currency is unregulated in India.

“Government does not collect information on trading in cryptocurrency,” Chaudhary said.

On the question of whether cryptocurrency exchanges are legally permitted entities in India and details of Acts that are applicable to crypto and the exchanges, he said that the Reserve Bank of India (RBI) on May 31, 2021 advised banks to continue to carry out customer due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering, Combating of Financing of Terrorism and obligations under Prevention of Money Laundering Act, (PMLA), 2002.

The central bank had also asked the banks to ensure compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances, he added.

In response to another question on Bitcoin transactions, Finance Minister Nirmala Sitharaman said in a written reply that the government does not have any proposal to recognise Bitcoin as a currency in the country.

Crypto Bill

The statements come at a time when the government has listed “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021″, for the winter session of the parliament, which started today. The bill seeks to ban all private cryptocurrencies while allowing a few exceptions.

Apart from seeking to bank private cryptocurrencies, the Bill will also pave the way for the central bank digital currency (CBDC) or fiat cryptocurrency project.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, seeks- “To create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

In reply to another set of questions in the Lok Sabha, the Minister of State for Finance said that the government last month received a proposal from RBI for amendment to the Reserve Bank of India Act, 1934 to enhance the scope of the definition of ‘bank note’ to include currency in digital form.

RBI has been examining use cases and working out a phased implementation strategy for introduction of CBDC with little or no disruption, he said. 

“Introduction of CBDC has the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, reduced settlement risk,” he said.

According to the minister, CBDC would also possibly lead to a more robust, efficient, trusted, regulated and legal tender-based payments option. “There are also associated risks which need to be carefully evaluated against the potential benefits,” he told the Parliament.

Resistance Of A Likely Blanket Ban

The proposed ban on cryptocurrencies has created a lot of uncertainty and raised concerns among stakeholders, apart from a panic in the crypto markets.

The Blockchain and Crypto Assets Council (BACC) on November 25th said that a blanket ban on cryptocurrencies will encourage non-state players and lead to higher unlawful usage of such currencies. 

The council under the Internet and Mobile Association of India (IAMAI) also said in a statement that in its submission before the Supreme Court earlier, listed several negative outcomes of a ban such as zero accountability and traceability of the origin and end usage of the cryptocurrencies, besides a complete evasion of taxes. A ban will also adversely impact retail investors, it said. 

Accelerated Push On Policy Front

The government push towards crypto regulation gained momentum after Prime Minister Narendra Modi (on November 14) chaired a high-level meeting regarding cryptocurrency. During the meeting several issues were discussed including “over promising” and “non-transparent” advertising.

During the meeting, it was also noted that the government is aware of the evolving technology and it will keep a close watch and take proactive steps.

However, despite the apprehensions and concerns, there was consensus that the steps taken in the field of cryptocurrency and related issues by the Centre will be progressive and forward-looking. 

Further, on November 15, a parliamentary standing committee meeting concluded on the consensus that the digital currency cannot be stopped but that it must be regulated instead.

The government is likely to come up with the much-awaited Cryptocurrency Bill in the upcoming winter session or the budget session of the parliament.

Growing Market

India has more than one crore crypto investors, and the number is significantly growing every day, with several domestic and global crypto exchanges operating in the country.

The investment in cryptocurrencies grew from nearly $923 Mn in April last year to $6.6 Bn in May this year in India. According to a report released in August by blockchain data platform Chainalysis, India ranks second out of 154 nations in terms of cryptocurrency adoption.