Academic Article by- Anuj Vishwakarma
Introduction-
From an utter ban on cryptocurrencies in 2016 to an upcoming Bill for regulation—the government’s pose on crypto-assets has changed considerably over the last few years. The upcoming Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is dissimilar from the earlier one – ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.’ While the 2019 law sought to foist a complete ban on all crypto-related activities including buying, holding, mining, dealing, and selling, the new one will focus to make a clear variance when it comes to its often-used categorization as a currency.
In India, currently, there is no regulation or any ban on the use of cryptocurrencies. The Reserve Bank of India’s (RBI) ruling banning banks from supporting crypto transactions, was backpedaled by the Supreme Court order of March 2020. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which is among the listed bills for introduction in Parliament’s Winter Session seeks to prohibit all “private cryptocurrencies” in India. However, it permits certain exceptions to encourage cryptocurrency’s cardinal technology and its uses.
The regulatory journey of cryptocurrency in India so far-
2013-2017
In 2013, the Reserve Bank of India (RBI) issued a circular warning to the public against virtual currencies. The bank warned holders, users, and traders of cryptocurrencies about the potential operational, legal, financial, security-related, and customer protection risks they are making themselves vulnerable to.
The RBI pointed out that it has been supervising developments in the virtual currency world, including Litecoins, Bitcoins, and other altcoins. But as banks continued to permit transactions on virtual currency exchanges — on February 1, 2017, RBI issued another circular, restating its distress with virtual coins. And by the end of 2017, a caution was issued by RBI and the finance ministry clarifying that cryptocurrencies are not legal tender.
At the same time, 2 Public Interest Litigations (PILs) were filed in the Supreme Court, one calling for a ban on purchasing and selling of virtual currencies in India, the other imploring for them to be regulated. In November, the government made a committee to study issues around cryptocurrencies and propose actions. At this time, there was no ban on virtual currencies and most banks permit transactions from cryptocurrency exchanges.
2018-2020
In March 2018, the Central Board of Digital Tax (CBDT) capitulated a draft scheme to the finance ministry for banning cryptocurrencies. A month later, the RBI issued a circular that prevent banks and financial institutions from providing financial services to cryptocurrency exchanges. Former RBI deputy governor BP Kanungo and then Central Board of Direct Taxes (CBDT) chairman Sushil Chandra expressed their opinions in favor of a ban on cryptocurrencies. Chandra said it generates “a chain of black money.” He also pointed out that searches performed into exchanges dealing with cryptocurrencies disclosed that most ignorant people in interior places are enticed to buy it.
On April 6, 2018, RBI issued a circular asking co-operative and commercial banks, small finance banks, payment banks, NBFCs, and payment system providers to handle virtual currencies or layout services to all entities dealing with crypto exchanges. Cryptocurrency prices dropped, exchanges froze, and withdrawals ceased once that order was passed.
In April 2018, the finance ministry appointed-committee put forward a draft bill for the regulation of cryptocurrencies but did not advocate a ban. However, in February 2019 the committee put forward a fresh draft bill that recommended a complete ban.
Meanwhile, in March 2020 an important development took place. The Supreme Court of India hefted the ban on cryptocurrency imposed by RBI, which ceased banks and financial institutions from providing access to services to those occupied in transactions in crypto assets.
2021 (January to October)
“A high-level Inter-Ministerial Committee (IMC) composed under the Chairmanship of Secretary (Economic Affairs) to study the matters related to cryptocurrencies and advance specific actions to be taken in the matter recommended in its report that all private virtual currencies, except any virtual currencies issued by the state, will be prohibited in India,” said the Finance Minister Sitharaman in Rajya Sabha on February 9.
Minister of State for Finance Anurag Thakur also notified the Parliament that the government outlined to bring a Bill on virtual currencies as the existing laws were considered inadequate to deal with the matters concerning virtual currencies.
Further, a report disclosed that India could put forward a law banning cryptocurrencies, fining anyone trading in India or even stocking such digital assets, said a senior government official. Days after the report come up, in an interview on March 5, Finance Minister Sitharaman said she wants to promote innovation in crypto. “We want to ensure that there is a window up for grab for all kinds of experiments and assessments which will have to take place in the crypto world,” she told during an interview on CNBC TV18. “We are not closing our minds.”
Further, in the month of November 2021, the Standing Committee on Finance, chaired by BJP member Jayant Sinha, met representatives of virtual exchanges, Blockchain and Crypto Assets Council (BACC), among others, and arrived at the conclusion that virtual currencies should not be banned, but regulated.
Earlier this month, Prime Minister Narendra Modi called a meeting on virtual currencies with senior officials. The portents are that strong regulatory steps will perhaps be taken to deal with the issue.
Meanwhile, the Reserve Bank of India (RBI) has again and again underlined its strong view against cryptocurrencies, identifying them as a serious threat to the financial and microeconomic stability of the country. It has also inflated doubts about the number of investors trading on virtual currencies and their assert market value.
RBI Governor Shaktikanta Das restated his opposition to cryptocurrencies, identifying them as a serious threat to any financial system and body since they are unregulated by central banks. The RBI divulged its intent to come out with an official virtual currency in the face of the burgeoning of cryptocurrencies like Bitcoin, with which the central bank has had many threats.
Conclusion-
The discourse over the faith of cryptocurrencies in India has been a trendy topic for the past decade. The position of cryptos in India has changed very frequently over the period of time. The stance of some entities has changed with time and on the other hand, some have acquired a rigid attitude such as the RBI and its Governor.
With the virtual currencies burgeoning with the advancement of technology, India which hosts a big number of digital users has a very important move to make. Finance Minister Sitharaman announcing that the RBI will be launching its own digital currency in the year starting with April 1 can be seen as a step of India towards the future of cryptos in the country.
References-
https://blog.quantinsti.com/cryptocurrency-india/
https://www.mondaq.com/india/fin-tech/944312/cryptocurrencies-in-india--past-present-future