Mayank Chhaya-
Perhaps it is just as well that the Indian government has used a rather cryptic language to announce its intention to introduce a bill in the upcoming session of parliament to prohibit private cryptocurrencies. Cryptic for crypto.
On the one hand, the draft language of the proposed bill says the government will “prohibit all private cryptocurrencies in India.” At the same time though it also says it will allow “certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
This is even as the government wants the country’s central bank, the Reserve Bank of India (RBI) to create an official digital currency. From the looks of it so far, it seems the government wants to eat its cake, have it too as well as run the bakery.
It is not clear what the bill means by “private” cryptocurrencies because all cryptocurrencies are private so far. With that as the backdrop, it is confusing what it means by allowing “certain exceptions”. Will these exceptions be from the same bunch of private cryptocurrencies?
What has added another dimension to the confusion is that recently RBI governor Shaktikanta Das has warned that cryptocurrencies are a cause for serious concern for macroeconomic and financial stability.
The draft bill titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” says the government wants “To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. 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.”
If the central bank chief thinks cryptocurrencies may pose a threat to the country’s macroeconomic and financial stability, what are the bypasses the government is considering in order to create its own cryptocurrency? In 2018, the RBI prohibited Indian banks from dealing with cryptocurrencies on the grounds that they exposed unsuspecting ordinary investors to grave risks by luring them with the promise of very high returns as well as opening up avenues for money laundering.
That RBI ban was struck down by the country’s Supreme Court two years later. It is not clear what the investors who have already put in money in cryptocurrencies will do if they are banned altogether. There are media reports that the government would consider offering them a way out by allowing them to cash out those investments by paying tax on them.
There are no expectations that cryptocurrencies will be banned altogether but in trying to regulate who gets to invest in them in a regulated fashion the government might end up creating a discriminatory hierarchy of investors, a kind of crypto caste system as it were.
There are media reports that India has some 20 million investors in cryptocurrencies with at least two crypto exchanges enjoying the unicorn status or valuation of a billion dollars plus.
Eventually, there is a widespread belief that in its quest to keep up with technological advances in future currencies New Delhi will strike a balance in its approach.
On the question of when or whether the RBI will create its own digital currency, things are not yet clear. That may depend on the kind of bill that is presented in the winter session of parliament starting on November 29.
Prime Minister Narendra Modi is personally interested in creating a regulatory framework around cryptocurrencies but given the way he botched up demonetization imposed suddenly on November 8, 2016, it is anybody’s guess how this might turn out. Ironically, one of the many purposes announced by the prime minister as part of his demonetization five years ago was to eliminate money laundering and unaccounted cash. Even some of his staunchest supporters do not think that demonetization achieved that goal at all. Preventing money laundering is said to be one of the objectives behind regulating cryptocurrencies as well.
Once India’s parliament discusses the crypto regulation bill at length its eventual scope and effectiveness will become clear but now though crypto traders and investors have been caught in a panic.
[Above photo courtesy:coinswitch.co. and campaignindia.in. The campaign is titled ‘Kuch Toh Badlega’ (something will change), featuring its brand ambassador, Bollywood actor Ranveer Singh.]
