The pushback and oscillations around the legal status of cryptocurrency in India isn’t something afresh. But the ongoing disruptions around the subject of cryptocurrency in India is revolving for over around 5 years now – causing havoc for the cypto investor community in the country. Thus, the clarity on what’s currently happening around cryptocurrency in India is very much needful.
Throwing some light on the subject and interpreting the strenuous information available across various media reports around cryptocurrency in India, I wanted to come up with this article – hoping that our audience would find it noteworthy.
In April 2018, RBI banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for frauds. In March 2020, the Supreme Court struck down the ban as unconstitutional. One of the reasons it gave was that cryptocurrencies, though unregulated, were not illegal in India.
All this time, the government tried to impose ban on cryptocurrency but in February 2019, the Supreme Court of India suggested regulation instead of banning the digital currencies completely. The apex court noted that cryptocurrency is capable of being accepted as a valid payment for purchase of goods and services, and payment systems can be regulated by the RBI.
Various recent media reports say that according to certain unofficial sources, people in India hold around $1.5 billion (INR 10,000 Crore) in cryptocurrencies in India. And in order to ensure the proper taxation of income generated by the investors by investing in cryptocurrency, the government is planning to bring cryptocurrency regulation.
Now, the government of India is planning to implement a cryptocurrency regulation – considering cryptocurrency as a threat to the financial ecosystem in the country. The Reserve Bank of India (RBI) is planning to launch its own cryptocurrency which would obviously possess legal status whilst going inline with the financial framework of the country.
On similar lines, Shaktikanta Das, Governor of RBI, in a statement said,
“Central bank digital currency is a work in progress. The RBI team is working on it, technology side and procedural side…how it will be launched and rolled out,”
According to various media reports, existing crypto investors in India now have a chance to exit from holding, trading and mining their crypto assets before the regulation becomes functional.
The Cryptocurrency Bill India 2021
The cryptocurrency regulation, proposed as ‘Official Digital Currency Bill – 2021’, will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an ‘official digital currency’ regulated by the RBI – going inline with the banking system in India. The bill was introduced in Parliament’s Union Budget session 2021-22 this year, then taken for discussions and planning.
Giving clarity on the same, a senior government official said,
“We have held extensive deliberations. There is the expert panel’s report, followed by inter-ministerial discussions, meetings by the Cabinet Secretary and submissions by various people concerned. The Bill will take all of that into account,”
Based on the some recent media reports, a 3-6 month exit period prior to banning the trading, mining and issuing of cryptos has been discussed in inter-ministerial discussions. Though the high-power inter-ministerial committee has previously recommended a ban on all private cryptocurrencies, the final draft Bill is yet to go to the Cabinet, a source said.
The central bank, RBI, has said that it is exploring a DLT (Distributed Ledger Technology) for application in order to improve the market structure – considering its potential in rolling out a legal central bank digital currency (CBDC). Also, the government is open to support the same.
On similar lines, an RBI official said,
“A fiat currency cannot have the kind of volatility and fluctuations you see in Bitcoin and other cryptocurrencies. We have an open mind. We are very open to a digital currency, the RBI is working on that,”
The Bank for International Settlements (BIS) recently conducted a survey central banks regarding CBDCs across the globe. Around 80 percent of the central banks responded that they have already started exploring the use of CBDC and assimilating its potential benefits for the economy.
Cryptocurrency startups in India
There are over 200 blockchain startups in India, out of which, most deal in the crypto space including various cryptocurrency exchanges that emerged in 2013 onwards such as Unocoin, Zebpay and more like WazirX which was founded in 2017 and then acquired by the Cayman Islands-based Binance, a global leader in crypto asset management and trading.
All things were pretty smooth for the crypto traders until April 2018 when the government imposed the ban on cryptocurrency – raising concerns about the financial ecosystem of the country. RBI then issued notice to all banks in India to prohibit and report all crypto deals happening in India. The Supreme Court of India lifted the ban in April 2019 but the volatility in Bitcoin and other private crypto prices and instances of fraud have underlined regulatory concerns for the government and RBI.
And an another ban or suppression of private cryptocurrency inline with the legal cryptocurrency i.e. a CBDC by RBI will be a bad news for existing crypto investors and cryptocurrency startups in India – signaling a slow and steady death of private cryptocurrency in India.