Recently, the government officially expressed its intention to introduce a Bill aimed at banning private cryptocurrencies in India. This came in amid increasing concern over cryptocurrency posing a threat to the macroeconomic stability of the country.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to prohibit all private cryptocurrency.In turn, it also proposes to introduce an official digital currency of the central bank, the Reserve Bank of India. The government’s move came days after Prime Minister Narendra Modi chaired a review meeting regarding the growing threat of cryptocurrencies. The government introduced a similar bill last year too but put it on hold for further discussions with industry experts and other stakeholders.
According to the Lok Sabha Bulletin Part 2 released on November 23, 2021, while the Bill aims to prohibit private cryptocurrency, this ban will not be a blanket ban. The Bill allows for certain exceptions to promote the underlying technology of cryptocurrency, that is blockchain, and its uses. The Centre is set to introduce this bill in the upcoming winter session of the parliament.
What is private cryptocurrency?
Popular crypto coins such as Bitcoin, Ether, Shiba Inu, and Dogecoin are completely transparent in their transactions. It means they are public with their dealings. Their transactions are traceable and linkable. However, some coins like Dash, Monero, Particl, and ZCash are a part of a private blockchain and their transactions cannot be traced. They use multiple ledgers in order to mask the identity of the investor.
So what’s the problem?
At a fundamental level, cryptos are based on decentralized ledger platforms that are not governed, monitored or regulated by a central body such as the Reserve Bank of India. In case of a crypto theft or scam, it might become difficult to trace down the culprit and recover the coins.
These coins are presently at a stage where they are only collected as an investment. They are only a store of value. Cryptocurrencies, in most parts of the world, are not used as a standard of exchange between parties. The government would find it difficult to regulate a currency as volatile as cryptos since it requires digital monitoring of a very large level, something that is not possible to develop overnight or even in a span of a few months.
Also, it might be difficult for the government to gauge the taxation mechanism when it comes to cryptocurrencies. Cryptos are presently not taxed in India, but people do need to declare their gains from crypto investments. Since regulation is difficult, it’ll be hard to categorize gains as long-term capital gains or short-term capital gains, and tax regulations would differ.
Indians form a large chunk of crypto investors worldwide, with 10 crore Indians holding cryptocurrencies. If India were to ban these coins, it would prove as a huge blow to investors and the crypto economy alike, with the currencies becoming volatile, potentially leading to a huge windfall loss for investors globally.
India’s stance:
India’s stance on cryptocurrencies is a mixed one. On one hand, we have the finance minister saying that the government will bring a well-consulted cryptocurrency bill, and that unregulated speculation about the developments in the crypto space is unhealthy. On the other, we have the prime minister saying that democratic countries must work together in order to ensure that the technology does not end up in the wrong hands, which may “spoil our youth.” We also have the RBI governor Shaktikanta Das who is of the belief that cryptocurrencies are a big threat to any economy. But the pace at which the world is growing, banning crypto as an asset class altogether will be harmful to India as it will disconnect the country from the rest of the world.
One thing that can be inferred from the bill though is that it is highly unlikely that cryptocurrency will become legal tender in India. El Salvador is the first country in the world to accept Bitcoin as legal tender, but in India, Bitcoin or any other crypto will not be able to replace the fiat currency.
The bill also expresses the RBI’s interest in bringing out a digital currency of its own. This digital currency will be regulated and monitored by the RBI itself. This means that the government is ready to make use of technology to formulate a currency for the first time.
The bill is in very early stages, and there is a fair chance that discussions and deliberations over the bill may lead to it being scrapped either partially or completely. As of now, while the parliament deliberates over what must be done in order to make cryptocurrencies a safe investment space, it is too soon to speculate about the future of cryptos in India.
Written by- Snehi Shah
Edited by- Ginia Chatterjee
