The cryptocurrency craze has increased in many folds in a couple of years. It seems everyone is on a spree to get a share of cryptocurrency in the market choosing from more than 2,000 investable cryptocurrencies in circulation.

Cryptocurrency is a digital or virtual currency, and according to Investopedia, “cryptocurrency is a form of a digital asset based on a network that is distributed across a large number of computers (that manages and records transactions). This decentralized structure allows them to exist outside the control of governments and central authorities.” 

Blockchain financial technology to secure cryptocurrencies as bitcoin for online payments and money transaction. Fintech concept with encrypted ledger blocks chained. Person working on computer
Blockchain financial technology to secure cryptocurrencies for online payments and money transactions.

This decentralized technology that the cryptocurrency uses is called Blockchain. Cryptocurrency can be used for purchasing goods and services but is only limited to online activity. However, to buy cryptocurrency, one needs to spend real currency. People can buy cryptocurrencies at the market price on different exchanges, just like buying the stock of a company. For example, as of 19th December 2021, the rate of 1 Bitcoin, a cryptocurrency company, is 47,137.10 USD.

Cryptocurrency was first conceived in 2008 with an intention to rectify the flaws in the way traditional transactions are held from one party to another, for example, long durations to settle cross-border payments or third-party fees during such translations. 

 

WHAT ARE THE GOVERNMENT’S PLANS FOR CRYPTOCURRENCY? 

India is also not lagging too far behind when it comes to investing in cryptocurrencies. It is currently the fastest-growing investment market, with nearly ten crore people investing more than 10 billion US dollars in cryptocurrencies in 2021. But the Government seems to have different plans for such investment options.

The Indian Government is planning to introduce a bill— Cryptocurrency & Regulation of Official Digital Currency Bill, 2021 in the Parliament during the present winter session that could ban private cryptocurrencies on one hand and, on the other hand, is planning to come up with its own digital currency— Central Bank Digital Currency (CBDC) that would be controlled by the Central Bank.

“Currently, cryptocurrencies are not regulated in India. The Government doesn’t collect data on the cryptocurrency sector. A Bill on Cryptocurrency & Regulation of Official Digital Currency has been included for introduction in the Lok Sabha Bulletin- Part II as part of the Government Business anticipated to be taken up during the Seventh Session of the Seventeenth Lok Sabha, 2021,” said the Union Minister of State in the Ministry of Finance Pankaj Chaudhary.

cryptocurrency india government

This is hardly the first time the Government is showing apprehension towards crypto…

In 2018, The Reserve Bank of India issued an order that prohibited any kind of support from the bank if a person wanted to invest in cryptocurrencies. Though the Supreme Court of India overruled the order on the grounds of proportionality and lack of legislative force, the Court admitted that the RBI has the authority to regulate digital currencies. Still, regulation has to be in proportion to the risk of damage the digital currency imposed. 

In 2018 itself, the Inter-Ministerial Committee drafted a Crypto-Token Regulation Bill to allow for regulated sale and purchase of crypto. 

Again in 2019, the same committee proposed another bill— Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019, demanding a complete ban on cryptocurrency. The bill was never presented in front of the Parliament.

In 2020, the Government again tried to lay down a law that could regulate digital currency. 

In 2021, the Government stressed the fact that it has no plans to boost the cryptocurrency sector in India.

However, what clause would be introduced with the bill is still unclear, and whether there will be a complete ban or it will be just an attempt to regulate them is debatable. It might ban all kinds of private digital currencies, or it might heavily tax the profits from crypto or keep some exceptions in the hope of gaining more control over digital money. Recent speculations suggest that the Government will allow trading and investing in crypto but with certain restrictions.

In the Lok Sabha bulletin listing, while discussing the agenda for the winter session, the Government explained the bill by saying, the bill aims to create a facilitative framework for the introduction of an official digital currency that will be issued by the Reserve Bank of India… The bill also seeks to outlaw all private cryptocurrencies in India. However, it permits for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

 

DANGERS ASSOCIATED WITH CRYPTOCURRENCY

The Government is concerned that such an unregulated digital currency market could lead to increased cases of money laundering, terror financing, and fraud. The Directorate of Enforcement is already investigating eight such cases of cryptocurrency-related frauds.

“This is a high-risk area & not in a complete regulatory framework,” said Nirmala Sitharaman, the Finance Minister of India.

According to research by Ernst & Young, of the total $3.7 billion funds raised in cryptocurrency offerings to date, around $400 million have been stolen. Also, cryptocurrencies can be very volatile and see a lot of fluctuations in their value. Its decentralized and anonymous nature provides it as a safe ground for criminals to engage in criminal activities. A lot of transactions for buying and selling drugs or weapons are done through cryptocurrency. 

cryptocurrency coins

The Government also fears the loss of sovereignty. The RBI is the highest controlling body that determines the monetary flow of the economy and is a very important body as it plays a crucial role in creating a balance between economic growth and inflation. The entry and growth of cryptocurrency make it difficult for the RBI to manage money supply and exchanges, thus losing its monetary sovereignty. 

The RBI is also concerned about the easy transactions of crypto across borders which could result in an excessive outflow of such currencies outside the country, especially in times of economic crisis. Monitoring economic activities that use blockchain technology makes it very difficult for Governments to regulate them and would need a lot of changes in the law and trained manpower to deal with frauds that might occur. 

Perhaps the major concern of the Government is how crypto has the potential to shield its investors from tax authorities leading to an increase in cases of tax evasions. 

 

CONCLUSION

There exists no ban or any kind of regulation on cryptocurrencies at present in India which is important for economic sovereignty and monetary stability. These currencies are not issued by any country thus not backed by any asset or sovereign guarantee. The Government is more interested in introducing a digital currency that is not decentralized and controlled by the Central Government.

“The introduction of CBDC has the potentiality to provide major benefits such as higher seigniorage due to lower transaction costs, reduced dependency on cash, & reduced settlement risk. The introduction of CBDC could also possibly lead to a more robust, efficient, trusted, legal tender-based, and regulated payment option. There also exist associated risks that need to be carefully evaluated against the potential benefits. As CBDC is backed up by the Central Bank of a country, apart from other benefits, it will not have the volatility which is normally associated with private cryptocurrencies,” Union Minister of State in the Ministry of Finance Pankaj Chaudhary said in reply to a query in the Lok Sabha.

Nonetheless, Some experts believe that it might be impossible to impose a complete ban on cryptocurrencies as crypto is decentralized and does not come under any single Government entity. Although a ban on trading in crypto and its use to make payments can be imposed by the Government, it will become very difficult to keep track. In countries like Turkey and Nigeria who have already tried banning cryptocurrency, they failed in their policy, and cryptocurrency boomed despite the ban. Even China banned crypto mining, but it continues in stealth mode, and illegal crypto activities have increased in the country.

Written by: Aashna

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