New Delhi: India will soon bring a law that will propose to completely ban private cryptocurrencies in the country, while allowing for the usage of its underlying technology for other purposes. It will also enable the issuance of a digital currency by the Reserve Bank of India (RBI).
The proposed ban, likely to be a first by a major economy, has caused large scale consternation among companies in the space as well as investors buying the cryptocurrency. There are also concerns about shutting down of firms, large scale job losses and wiping off of the investor wealth.
At a time when virtual currencies are gaining wide acceptance with electric car manufacturer Tesla investing $1.5 billion in Bitcoins, India has decided to move in the opposite direction.
ThePrint tries to explain the issues involved, the impact of the proposed ban and what has been the regulatory evolution.
Why the push for a ban
Cryptocurrencies are not issued by any central bank and thus have no sovereign backing. There is also no underlying intrinsic value of these private cryptocurrencies unlike a currency issued by the central bank.
The finance ministry had likened the Bitcoins to ponzi schemes due to lack of an underlying asset. These currencies also see extreme price fluctuations leading to fears that Indian investors may lose money due to their investments in Bitcoins.
Current regulatory framework
At present, there is no regulator that regulates cryptocurrency — neither the RBI nor the Securities Exchange Board of India (SEBI).
Following a massive price surge in 2017, the Indian government set up a committee under the economic affairs secretary with representatives from the RBI and SEBI to look into this issue. In addition, the Union budget presented in February 2018 had pointed out that the government does not consider “crypto-currencies legal tender or coin”.
Subsequently, in April 2018, the RBI had instructed entities regulated by it such as banks and other financial institutions to not facilitate any transactions relating to virtual currencies.
In its report finalised in February 2019, the committee under the economic affairs secretary had proposed a complete ban on cryptocurrency in India. It also proposed an enabling framework for a digital rupee issued by the RBI and a draft legislation to bring this into effect.
However, the report went into the backburner for more than a year until the Supreme Court in March 2020 set aside the ban imposed by the RBI.
Status of new bill
The government has finalised the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 and is planning to send it for cabinet approval soon.
The bill is also listed to be tabled in the ongoing budget session of Parliament where it will be tabled after the cabinet’s approval.
It has been overseen by the empowered technology group headed by the principal scientific advisor to the government and the committee of secretaries chaired by cabinet secretary.
Ban could result in job losses, illegal trade & loss of wealth
Jaideep Reddy, a lawyer at Nishith Desai Associates, said a ban would result in authorities losing oversight of the system.
“Currently, all major exchanges carry out transactions only through banking channels; they are transparent, open to audit, file taxes, and have assisted law enforcement agencies multiple times. A ban would result in an underground system,” he said.
Nischal Shetty, founder of WazirX, a Bitcoin and cryptocurrency exchange and trading platform based in Maharashtra’s Vashi said if cryptocurrency is banned, exchange platforms and other startups will have to shut down and many people will lose jobs.
“There is also an entire ecosystem of online influencers and bloggers who make content on cryptocurrency — they will lose their jobs too,” he said.
He added that India has about seven to 10 million users with at least one billion dollars worth of crypto assets. “There were users who started investing in crypto assets during the lockdown as they lost jobs and sought ways to increase wealth. The wealth of all these Indians will be wiped out if cryptocurrencies are banned,” he said.
Ashish Singhal, chief executive of CoinSwitch, a Bengaluru-based exchange aggregator platform where users can trade cryptocurrencies, said a ban does more harm to the government.
“The underground market for crypto will thrive in the absence of regulations. Without any credible exchanges around, it will be easier for the ordinary folks to fall into the trap of pyramid schemes,” he said.
How industry is fighting the proposed ban
Singhal said in view of this impending ban, all exchanges and stakeholders have started a movement called #Indiawantsbitcoin.
“A website is launched (indiawantsbitcoin.org) to let normal public voice their support towards crypto by mailing their respective MPs and finance ministry. This movement’s idea is to bring to the MPs’ notice that crypto is an important industry, and millions of Indians are part of it. This movement is aimed at helping MPs make an informed decision when the bill gets tabled,” he said.
He added that within three days of the campaign going live, over 2 lakh users sent out emails voicing their support. “We aim to have at least a million users to voice their support,” he added.
How digital rupee will work, differ from Bitcoin
The RBI has not finalised the contours of the digital rupee but the legislation is a step in enabling it to launch the digital currency as and when it wants.
“Pretty much like you could buy an object at a retail store by paying with a currency note or a digital wallet, you would be able to pay using a central bank digital currency. So, from the users’ point of view it will not be very different,” said Ajeet Khurana, Bitcoin and tech startup investor, and former CEO of IIT-Bombay business incubator.
He added that no country so far has actually deployed a digital currency even though several initiatives have been taken.
Reddy pointed out that a central bank digital currency will be a direct liability of the RBI and can be held as an account with the RBI without the need to have an intermediary financial institution (like a bank or e-wallet).
“In that sense, it would be an electronic version of paper currency,” he said.
Shetty said digital rupee would make transaction settlements instantaneous as it reduces the time taken to verify if the transaction is legitimate.
“Right now clearing transactions take two-three days as banks and clearing houses check that the transaction is legal and comply with norms,” he said.
Shetty added digital rupee and other cryptocurrencies serve different purposes, and the two can co-exist.