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Bill to ban cryptocurrency part of govt’s Parliament agenda

India at present has no regulation for cryptocurrencies – a set of decentralised digital currencies such as Bitcoin and Ethereum that are not regulated by any sovereign banking regulator.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.(iStock)
Updated on Nov 24, 2021 01:19 AM IST
ByRajeev Jayaswal, , Hindustan Times, New Delhi

A bill that “seeks to prohibit all private cryptocurrencies in India” is among 26 pieces of legislation planned to be brought to Parliament in the session beginning next week, according to a Lok Sabha release on Tuesday -- the clearest sign yet that the Union government is moving to ban instruments such as Bitcoin for transactions in the country.

India at present has no regulation for cryptocurrencies – a set of decentralised digital currencies such as Bitcoin and Ethereum that are not regulated by any sovereign banking regulator. No official data is available but industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around 40,000 crore ($5.39 billion), Reuters reported, although some exchanges peg this value as high as $10 billion.

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks “to create a facilitative framework for 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,” said the bulletin issued by the Lok Sabha.

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On November 13, Prime Minister Narendra Modi chaired a meeting to discuss the future of cryptocurrencies, amid concerns that unregulated crypto markets could become avenues for money laundering and terror financing, a person aware of the matter said, asking not to be named. The RBI had in 2018 banned the banking system from cryptocurrency transactions, which was struck down by the Supreme Court in 2020.

It is unclear as of now the nature of options the government may or may not give for people who hold cryptocurrencies, although people aware of the matter have said in the past that people could be allowed a window to liquidate their holdings and pay taxes on gains.

“After the meeting, it was agreed that various unscrupulous elements are trying to mislead Indian youth by positioning cryptocurrency as the shortest, quickest and surest way to become rich. Similarly, several people are indulging in non-transparent advertising, risking gullible people, which the government wants to be stopped,” said the person quoted above.

The meeting was held after consultations with experts in government agencies and the Reserve Bank of India (RBI), after which the government concluded that these should be banned. Independent stakeholders, including the Confederation of Indian Industry (CII) urged the government to put in regulation instead of an outright ban.

A senior leader from an opposition party, who asked not to be named, said they will ask for “the bill to be referred to a parliamentary panel”.

The government, however, intends to move ahead with a plan to authorise the Reserve Bank of India (RBI) to float its own digital currency. Technically known as a central bank digital currency (CBDC), these are distinct from cryptocurrencies in the manner that they are regulated by a centralised authority – the central bank. In India’s case, people aware of the matter said previously that this domestic digital currency could be initially pegged at a 1:1 ratio with the rupee.

The bill could also allow for the use of technologies known as blockchain and distributed ledgers, which underpin the cryptocurrency mechanism but have been used also to create secure records and identity management.

Countries are at present divided on how to approach the regulation of cryptocurrencies. According to an October 2021 note by Fitch Ratings, the exposure of American corporate and financial institutions to cryptocurrencies is predicted to grow – several companies, such as Tesla, have accepted Bitcoin for payments, and plan to resume doing so if concerns over their environmental impacts are addressed.

On September 24, China banned cryptocurrencies and rolled out its own digital currency, known as the e-CNY.

A Fitch report on CBDCs from May 2021 said such digital currencies have the potential to boost cashless payments and wider digitalisation of economies. “For central banks in some emerging markets, a key driver for researching CBDCs is the opportunity to bring underbanked communities into the financial system, and improve the cost, speed and resilience of payments.”

“The world’s biggest economies and their central banks have announced they are working on CBDCs: the US Federal Reserve, the Bank of Canada and the European Central Bank are trailing behind the People’s Bank of China, which already is testing its CBDC with more than 50,000 citizens. The Bahamas issued its central bank digital currency – the “sand dollar” – in October,” it added.

The difference between a decentralised and centralised currency is at the heart of the arguments for and against both kinds of digital currencies. While cryptocurrencies such as Bitcoin offer anonymity of the nature of cash bills and draw their value from its demand and supply, they do not carry any sovereign guarantees making collapses in value immitigable. On the other hand, CBDCs do not carry such risks but they do not offer the anonymity of cash.

Additionally, experts have raised concerns over the impact on banking institutions that currently act as intermediaries in the financial system.

“This is a big moment for India. From a banking ban in 2018 to listing the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the Parliament’s winter session. Our nation has come a long way in these 3 years! It speaks volumes about how India is determined to dominate the web 3.0 era,” said Nischal Shetty, founder of Wazirx, a cryptocurrency exchange.

“While the description of the draft bill appears to be the same as in January 2021, several noteworthy events have occurred since January. First, the Parliamentary Standing Committee invited a public consultation, and then our Prime Minister himself came forward to call for crypto regulations in India. That being said, let’s respectfully wait to find out more about the draft bill to be tabled in the Parliament,” Shetty added.

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