The central government has proposed that a law on cryptocurrency be introduced shortly Winter session of Parliament to facilitate the creation of the official digital currency issued by the Reserve Bank of India (RBI).
The draft law entitled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” is available for introduction and approval in parliament.
According to a parliamentary bulletin, “the stated intent of the bill is to provide a facilitating framework for the creation of the official digital currency issued by the Reserve Bank of India.”
The bill also aims to ban all private cryptocurrencies in India. However, it allows certain exceptions to promote the underlying technology of the cryptocurrency and its uses.
In total, the center intends to introduce a total of 26 new bills into the Lok Sabha in the coming winter session.
Top sources in the government have indicated that India may not be completely closed to the concept and technology surrounding digital currency and may not take as hard a stance as China.
The government was reluctant to treat cryptocurrencies as currency because banknotes and coins are legally protected and regulated by the RBI in consultation with the government.
“The currency has the support of the sovereign. It can be regulated at any level. If cryptos are given the status of a currency, the problem remains who will guarantee,” said an official.
First steps towards crypto
The first hint that the government is trying to fix the cryptocurrency-related security picture came on November 18.
Speaking to the Sydney Dialogue, a forum on new, critical and cyber technologies, Prime Minister Narendra Modi said: “Take cryptocurrency or bitcoin, for example. It is important that all democratic nations work together to ensure that it does not fall into the wrong hands that can spoil our youth. “
Five days earlier, PM Modi had held a meeting with senior officials on cryptocurrencies.
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A source said that despite the volatility and risk involved, the popularity of crypto has signaled that the digital currency can be a source of income for the government. The revenue could also mean direct taxes and GST are levied on services provided by digital currency operators. It could also create jobs.
Do the reservations of the RBI predominate?
RBI has been expressing serious concerns about cryptocurrencies since 2017. In July 2017, the then RBI governor Urijit Patel informed a parliamentary body that the central bank was closely monitoring transactions in cryptocurrencies.
Then panel members, including BJP MP Nishikant Dubey and BJD’s Bhartrihari Mahtob, said the rise in the use of virtual currencies was a cause for concern as it was difficult to pinpoint the source of money. Patel had informed the members that the RBI had set up an interdisciplinary committee to discuss the legality of cryptocurrencies.
An RBI circular dated April 6, 2018 banned banks and companies regulated by it from providing services in relation to virtual currencies. On March 4, 2021, the Supreme Court overturned the circular,
RBI Governor Shaktikanta Das recently stated that the central bank had major concerns about cryptocurrencies being transmitted to the government over a period of time.
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Despite the high demands of BACC and CII last Tuesday, Shaktikanta Das questioned practically all claims and demands of cryptocurrency stakeholders at an SBI event.
“I want to repeat that the number of accounts is exaggerated in the sense that about 70-80% of the accounts cited are small accounts of 1,000-2,000 rupees and even 500 rupees. So, anecdotally, and we have a lot of feedback that, while credit and account opening incentives are provided, the amount in these ranges from 500 to 2000 rupees, “said Shaktikanta Das.
The RBI chief said he agreed that the value of trading in cryptocurrencies has risen, but “if the central bank says we have serious concerns from the point of view of macroeconomic and financial stability, then there are serious problems”.
“I haven’t seen any serious, well-informed public debate. Currently, as the central bank in charge of maintaining financial stability, the RBI, after proper internal discussion, says there are serious concerns, then there are” deeper problems that require much deeper discussions, “said Shaktikanta Das.
Recommendations from the SC Garg Committee
The new draft law appears to be based largely on the recommendations of the SC Garg committee formed by the Ministry of Economics of the Treasury.
In its report entitled “Report of the Committee on the Proposal of Specific Measures Regarding Virtual Currencies”, the committee even proposed banning cryptocurrencies.
The committee noted with concern that overseas cryptocurrencies are almost always skyrocketing and large numbers of people in India are investing in them.
The report stated categorically: “All of these cryptocurrencies were created by non-states and are exclusively private companies in this sense, and there is no underlying intrinsic value of these private cryptocurrencies that would make them lack all of the attributes of a currency.”
The other point of the report was that there is no fixed face value of these private cryptocurrencies, meaning neither acting as a store of value nor serving as a medium of exchange. Since their inception, cryptocurrencies have shown extreme price fluctuations.
The market felt that following the report by the SC Garg Committee, the date of cryptocurrencies was sealed as it had stipulated that private cryptocurrencies should not be allowed. The committee had said that the cryptocurrencies cannot serve the purpose of a currency because private cryptocurrencies are incompatible with the essential functions of money / currency.
Therefore, private cryptocurrencies cannot replace fiat currencies, the committee said.
The other key recommendation made by the committee was that the government should be open to an official digital currency. It proposed that the Ministry of Economic Affairs set up a group with the participation of representatives from RBI, MeitY and DFS to examine and develop a suitable model of digital currency in India.
If the official digital currency were to be given legal tender status, the committee had suggested that the RBI, based on its powers under Section 22 of the RBI Act, should be the appropriate regulator for that digital currency.
The bill, which was based on these recommendations in January of this year, brought back the nervousness of April 6, 2018, when the RBI had banned banks from handling cryptos.
Crypto players flexing their muscles
Indian crypto exchanges and industry associations recently published a joint ad claiming that crypto investments by Indians have exceeded Rs 6 lakh crore and the number of investors has grown exponentially to over 10 crore.
While many of these investments are labeled micro and micro-investments, the government is unwilling to crack down on it.
Last Monday, the Standing Finance Committee, headed by former Minister of State for Finance Jayant Sinha, met with representatives from crypto exchanges, the Blockchain and Crypto Assets Council (BACC), CII and ASSOCHAM, among others. The representatives had a strong pitch for regulations and clear basic rules for the operation.
While committee members had raised serious concerns and the need for regulation, no one pushed for a ban.
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