India's approach to private cryptocurrencies

Globally countries have started recognizing cryptocurrencies as an asset, digital currencies and even as a legal tender.

After the Central American nation, El Salvador recognized the digital currency Bitcoin (BTC) as legal tender and supported its adoption, globally many nations have started mulling the idea to adopt cryptocurrency for payments purposes.

However, things are a bit different in India, where the government is yet to take any stand on the legality of cryptocurrencies. 

Speaking at the crypto asset conference HODL – 2021, organized by the Blockchain and Crypto Assets Council (BACC) of Internet and Mobile Association of India (IAMAI), India's former Minister of State for Finance Jayant Sinha said that government will take a distinctive approach to regulate cryptocurrencies, which will be different from the western countries.

Sinha, who is also the chairman of the Parliamentary Standing Committee on Finance said that any regulations on cryptocurrency would also involve consultations with stakeholders, like crypto experts, crypto exchanges, others, once parliament gives its go-ahead.

Even though India has a strong base of crypto investors and exchanges, it has not given any legal authority to cryptocurrencies.

Though finance ministry under Ms Nirmala Sitaraman has given a positive signal for not banning crypto, the Reserve Bank of India (RBI) has been opposing legal status to the crypto sector citing various concerns.

India’s ‘Cryptocurrency and Regulation of Official Digital Currency Bill’ is expected to be tabled during the winter session in the parliament. 

RBI role

Instead of developing a regulatory framework to address these issues, the Reserve Bank of India (RBI), in April 2018, effectively imposed a ban on cryptocurrency trading. However, the ban was overturned by the Supreme Court in March 2020. 

Due to high volatility, susceptibility to hacking, and the fact that they could potentially facilitate criminal activities such as money laundering, terrorist financing and tax evasion between 2013 and 2018, the government’s response to the rise of virtual currencies was cautionary, alerting users to the potential risks posed by cryptocurrency transactions. 

In January 2021, the government proposed a bill to prohibit ‘all private cryptocurrencies’ in the country and develop a framework for creating an official digital currency issued by the Reserve Bank of India (RBI). 

While replying to a question in the parliament, Minister of State for Finance Anurag Singh Thakur said that the government “does not consider cryptocurrencies legal tender or coins”. 

He also underlined that the government would take all measures to eliminate the use of crypto assets in financing illegal activities or as part of the payment system.

Crypto exchanges to cooperate

Indian crypto exchanges on the statement of Sinha have expressed willingness to work with the government and are open for discussion to address the government's concerns.

Various exchanges heads have accepted that India has its own unique strengths and issues when it comes to implementing laws and regulations around crypto and we're open for the regulatory framework that matches these unique needs.

Citing that laws in western countries cannot be replicated in India, we need to work alongside the regulators and policymakers to define laws that keep the nation's interest in mind. We hope that the government consults with the industry players and takes into consideration their recommendations before finalizing on the bill, a CEO of India-based crypto exchange said.

The demand for cryptocurrencies has been steadily rising in India, the crypto bill could be a significant boost to the crypto ecosystem as a whole, he adds.

Rajya Sabha member Amar Patnaik, who is also a member of the Parliamentary Standing Committee on Finance led by Sinha, said that there is a need for a strong regulatory framework for crypto assets in the country. Priority should be to put in a regulatory and innovation sandbox both in SEBI (Security Exchange Board of India) and RBI and see prototype wise how it can marry with the Indian system. 

As per an estimate, India has over 15 million crypto users and has an exposure of over $6.6 billion, which is expected to rise, if the government provides a legal umbrella to the crypto industry.

Jagdish Kumar
Klever Writer
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