What’s the government’s position on the crypto ban today and do experts and population consider it a good idea? Let’s find out
There have been debates in India on whether to allow or to ban the cryptocurrency market since 2018.
Crypto-related legal debates
Like every country in the world, India met the advent of crypto with caution. Moreover, the Reserve Bank of India (RBI) was reluctant to accept crypto transactions within the national borders. The highest banking authority maintained that there was a high risk of money laundering, terror financing, hacking, and fraud in this decentralized sphere.
2018 – an Inter-Ministerial Committee (IMC) proposed the Crypto-token Regulation Bill (the First Draft). RBI issued the “Prohibition on dealing in Virtual Currencies (VCs)”. The document ruled that entities regulated by the Reserve Bank shall not deal in VCs or provide related services for facilitating any person or entity in dealing with or settling VCs. Such services include such as maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them, and transfer/receipt of money in accounts relating to the purchase/ sale of VCs.
2019 – the government created the Draft Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, but never passed it into law. The bill aimed to prohibit mining, holding, selling, trade, issuance, disposal, or use of cryptocurrency in the country. The proposed punishment for such activities is a fine or imprisonment of up to 10 years. However, the ban was applicable mostly to private cryptocurrencies. On the other hand, it allowed issuing of a centralized digital rupee as legal tender and suggested CBDCs acceptance.
2020 – India’s Supreme Court struck down a 2018 order by the central bank forbidding banks from dealing in cryptocurrencies. By its decision regarding the “Writ Petition (Civil) No.528 of 2018: Internet and Mobile Association of India vs RBI”, RBI’s Circular was overturned. The court decided that the prohibition of any economic activity should fall within the legal jurisdiction of national economic policies, not the regulator, and ordered the government to take a position and draft a law on the matter.
2021 – the ministry of corporate affairs (MCA) has asked all companies in the country to mandatorily disclose any dealings in cryptocurrency or virtual currency in their balance sheets. The Cryptocurrency Ban and Regulation of Official Digital Currency Bill, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an “official digital currency”, was to be introduced in Parliament’s Budget session, but was held up as the government continues discussions with stakeholders.
If the proposed legislation is passed, it will make India the first major economy in the world to make holding cryptocurrency assets illegal. Moreover, according to the analysis of PRS Legislative Research, the definition of crypto-assets previously proposed by the government was too broad and different from international standards. Thus, it may affect even tokens generated through non-cryptographic means that do not pose any risks associated with cryptocurrencies. Finally, if the government takes the 2019 Bill as the foundation for the new law, the punishment may be disproportionate as compared to other similar economic offenses. Undoubtedly, the strictest crypto ban in the world faces strong public opposition.
Crypto companies WazirX and CoinDCX are running the #IndiaWantsCrypto campaign on Twitter. The campaign has already found support from several startup founders and angel investors. The Congress MP Milind Deora has also expressed his opinion against the crypto ban in a Tweet.
It seems the government has taken into account some of the objections since they hold on with the ban, taking some time to discuss the issue.
Meanwhile, the Indian crypto investors, who put around 100 billion rupees ($1.4B) in cryptocurrencies, are anticipating the worst outcome. Insiders said some of the Indian investors had already started selling their crypto assets in February when the bill was rumored.
Why crypto ban is a bad idea
By rough estimates, India has contributed to between 2-10% of the $430B virtual currency market worldwide. Banning all activities related to crypto-assets would strip investors of their profits and discourage them from any other blockchain opportunities. Some people would be tempted to hold on to their bitcoins, especially now when the currency continues its bullish rally. That would automatically make them criminals subject to severe punishment.
Although the government doesn’t reject the technology itself, there will be little point in developing new fintech solutions based on blockchain if the authorities treat that with such suspicion. The whole point of distributed ledger concept is decentralization, but the government of India clearly wants to control all the financial processes itself. Most probably, the country would end up using smart contracts for documentation rather than money flow.
Another point is that maintaining such a strict ban would require a lot of excessive control including collection of the private Internet traffic data. Since Indian citizens would be prohibited to use local well-regulated exchange services, they may engage in darknet activities to hide the geographical location of their transactions.
In addition, banning crypto dramatically hits financial inclusion. In countries where inflation rate is huge, cryptocurrencies have already become a viable solution. They have the potential to help unbanked individuals get access to financial services, providing lower costs and higher verification levels. As a byproduct, crypto facilitates a smooth transition to a cashless economy. Ignoring all that is not a good idea. Especially, when we speak of a country where the rate of financial inclusion is one of the lowest in the world, whereas money forging flourishes despite massive demonetization efforts.