Is India set to ban cryptocurrencies? It’s a bit unclear for now

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Crypto currencies on Indian crypto exchanges tanked yesterday after it came to light that Parliament will see the introduction of the much-delayed cryptocurrency bill at its winter session that will commence on November 29 and is expected to continue till December 23.

The official bulletin said: The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, India  aims to create a framework for the official digital currency that will be issued by the Reserve Bank of India.

So far okay. But it is the second part of the official announcement that has truly set the cat among the pigeons. It read: “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.”

So what are private cryptocurrencies? Aren't all of them private? So, is India planning to strike down all cryptocurrencies a la China that banned them en masse early this year? 

It has naturally triggered an avalanche of speculation, and this is one of the reasons  cryptocurrencies took a beating last evening.

Indian and cryptocurrencies: A mixed bag

India's approach to cryptocurrencies, like its many moves on the economy, has been confusing. There have been many conflicting signals from it over its official position on digital tokens even as they met with enormous growth at the grassroots level.

India has now reportedly emerged as one of the biggest cryptocurrency markets — there are over 2 crore Indians who are said to be dabbling in cryptocurrencies. No official data is available but industry estimates say that the total crypto holdings from India is around Rs 40,000 crore.

Further, there have been reports about typical fly-by-night operators scamming the system. And one of the reasons trotted out was that the 'the entire cryptocurrency ecosystem is unregulated'.

So the Indian government — historically known to be parental in its control — turned its gaze towards cryptocurrencies. The labyrinthian complexity probably was too much for it. And out emerged the report last year that the government was planning to ban all cryptocurrencies. It was even said it will introduce a bill during this year’s Budget session (February-March) to take out the cryptocurrencies.

As it happened, the Bill was scrapped, and a committee was formed to discuss the matter further with the stakeholders. Since then, the signal from the government was that cryptocurrencies can co-exist with the Indian rupee, but will be regulated.

PM chairs meeting on cryptocurrencies

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Earlier this month, Prime Minister Narendra Modi chaired a meeting that discussed the way forward for cryptocurrency & related issues 

The meeting was held after the RBI, Finance Ministry and Home Ministry had done an elaborate exercise on it as well as consulted experts from across the country & world.

The meeting also reportedly concluded that the crypto markets cannot be allowed to become avenues for money laundering & terror financing. “Government is cognizant of the fact that this is an evolving technology hence it will keep a close watch and take proactive steps,” sources were quoted as saying after the meeting.

“There was consensus also that the steps taken in the field of cryptocurrency & related issues by the government will be progressive & forward-looking. Government will continue to pro-actively engage with the experts and other stakeholders,” they added.

The last bit gave hope that the authorities will come up with a creative framework that allows for regulations to weed out scamsters even while providing the free space needed for cryptocurrency operations.

The draft of a previous Bill

Various punishment envisaged under the cryptocurrency Bill

Punishments envisaged in a previous version of cryptocurrency bill. (Image credit: PRSI)

But yesterday's wording in the Parliament bulletin that talked of banning private crytocurrencies has stirred a hornet's nest. 

The contents of the latest Bill continue to be a mystery as it was never made public. It is being suggested that this could be the amended version of the “Draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019”.

As per the draft of the Bill, “mining, holding, selling, issuing, transferring or use of cryptocurrency is punishable with a fine or imprisonment of up to 10 years, or both.”

The draft also defined cryptocurrency as “any information, code, or token which has a digital representation of value and has utility in a business activity, or acts as a store of value, or a unit of account.” 

Under the draft Bill, “a person must declare and dispose of any cryptocurrency in his possession, within 90 days from the commencement of the Act.” But, it permits the use of processes or technology underlying any cryptocurrency for experiment, research, or teaching.

The central government, in consultation with the RBI, may issue digital rupee as legal tender. The RBI may also notify a digital currency recognised as legal tender in a foreign jurisdiction, as a foreign currency, the draft had said.

Yesterday's announcement, however, states that only private cryptocurrencies will be banned even though nobody is certain on how it is officially defined.

It is widely held that crypto tokens like Bitcoin, Ethereum may not be affected as they are based on public blockchain networks. Transactions made on these networks are traceable. Private cryptocurrency may refer to the likes of Monero and Dash that conceal the transaction information.

Anyway, the enigmatic world of cryptocurrencies will continue to remain puzzled till the Indian government plays its card in the open.

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