January , 2022
Can cryptocurrency be banned in India?
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Rajiv Khosla

Leading newspapers have reported that the Narendra Modi government planned and dropped the introduction of the cryptocurrency bill in Parliament during the recently concluded winter session. Cryptocurrency and Official Digital Currency Rules Bill 2021 fundamentally aimed to limit the use of cryptocurrency. Earlier, a meeting of the Parliamentary Committee on cryptocurrency was held on November 16 this year in which it was revealed that the spread of cryptocurrency cannot be stopped, rather it can be regularised only. Finance Minister Nirmala Sitharaman recently issued a statement saying that no country in the world has a one-point formula for regulating cryptocurrency. During the recently held session of the Indian Parliament, Sitharaman while addressing the Rajya Sabha said that the government was yet to take any decision on cryptocurrency advertisements. Since cryptocurrency advertisements do not fall within the regulatory framework, hence efforts are being made by the Reserve Bank of India to create awareness about them. Now the central government is also planning to classify cryptocurrency exchanges (from which cryptocurrency transactions take place) as e-commerce companies and impose 1% tax on them under GST. Against these odds, the available details of the Cryptocurrency Bill introduced in the Indian Parliament show that the government has proposed to ban the use of cryptocurrency for making payment systems or remittances. Further, the provisions state that individuals and corporate entities that are caught violating cryptocurrency laws will be imposed FINANCE & ECONOMY FINANCE & ECONOMY Can cryptocurrency be banned in India? with fines or charged under non-bailable sections. However, blockchain technology through which cryptocurrency is operated will not be restricted. In addition to this, those who use crypto technology for research or for experimental purposes will also be exempted from restrictions. Most importantly, the Bill lays a ground for the offtake of a digital currency to be used by the Indian central bank in the near future. Amid these contradictions, only an in-depth understanding of the matter can give us the wisdom to comment upon the Indian government’s stand on cryptocurrency. The criss-cross arguments of the government need to be understood in light of what other countries of the world are doing to address the legitimacy of cryptocurrencies. Genesis of cryptocurrency The sub-prime crisis in the US, its global spill-over to other sectors and countries and dissolution of financial institutions like Lehman Brothers in 2007-08 knocked down the public confidence in banks thereby prompting people to find a way to facilitate normal transactions away from the existing banking system. On November 1, 2008 Satoshi Nakamoto, a technical expert, announced that he had devised such a system in which transactions would be made without any use of currency issued by the central bank and these transactions can be kept completely confidential. In 2009, Satoshi publicly announced that the US Federal Reserve and banks had kept low reserves with them by providing loans to risky ventures thereby causing the general public to suffer during the crisis when money was needed the most. Satoshi believed that the public had confidence in banks owing to the fact that banks do not allow the currency to weaken. But history bears testimony to the fact that banks around the world have often trampled on public confidence due to their faulty policies. Satoshi created 50 Bitcoins on January 3, 2009 using blockchain technology. As Bitcoin began to gain popularity, other cryptocurrencies also started emerging. Litecoin and Ether were amongst the first cryptocurrencies to emerge. There are currently hundreds of cryptocurrencies being traded worldwide. Legitimacy of cryptocurrency in different countries The world is now divided over the legitimacy of cryptocurrency. On one hand, there are countries like El Salvador, Cuba and Brazil which have given recognition to cryptocurrency and on the other hand are countries like China, Nepal, Colombia, Russia, Indonesia and Bolivia which have completely banned the cryptocurrency. Against these two extremes stand the United States, Canada, United Kingdom, Australia and the European Union which have neither legalised nor restricted cryptocurrency. Recognition and prohibition of cryptocurrency is now widening the gap between the countries as well. El Salvador is now coming up with a Bitcoin City project which is being built by issuing Bitcoin bonds for upto ` 7500 crore for five years. At the same time, it is proposed that nonconventional and renewable (green) energy will now be used to operate Bitcoin. On the contrary, China is hard bent and seems to have reasonably succeeded in converting its Central Bank issued currency, the Yuan, into a digital currency. Since 2020, China has been experimenting with the use of digital Yuan in about a dozen areas. Now China is working to integrate the digital Yuan with mobile apps so as to reign over the country’s retail transactions. Reports indicate that by the end of June this year,140 million Chinese already had set up digital Yuan accounts. The Bank of China claims that China has developed a machine that converts foreign currencies into digital Yuan, a move that China has initiated in preparation for the 2022 Beijing Winter Olympics. At the same time, the digital currency of the Central Bank of China will be introduced to the world. India’s stand on cryptocurrency As far as India is concerned, our government has long been struggling with cryptocurrency. In April 2018, the Reserve Bank of India issued a notice to banks not to trade in cryptocurrencies. Against this notice, the Internet and Mobile Association of India (IMAI) knocked on the doors of the Supreme Court of India. The Supreme Court held that while the Parliament of India has not laid down any rules banning crypto, there is no legal basis for the Reserve Bank to ban crypto. Accordingly, on March 4, 2020, the Supreme Court lifted the ban on crypto. Again, the Reserve Dr. Rajiv Khosla — The author is Associate Professor in DAV Institute of Management, Chandigarh — The opinion/s expressed in the article are that of the author’s and do not necessarily represent or reflect the policy or position of this magazine. Bank in its order dated May 31, 2021 strongly directed the banks to take action against corrupt crypto investors under the money laundering and anti-terrorism regulations. Crypto Research and Intelligence Business Agency revealed that by the end of October this year about 10.5 crore people in India had invested `75000 crore in some form of digital token. By this time, a cryptocurrency scandal was also unearthed in India. In November this year, there were reports in the newspapers about a criminal hacker who was apprehended by the Indian police from Bangalore in 2020 in a ` 9 crore Bitcoin hacking case. Today, the Government of India seems set to get the bill to curb cryptocurrency passed by the Parliament on the premises that the Reserve Bank of India should have full control over the currency or to stop illegal transfers across the border or to curb the problems of fraud and hacking. But passing of the bill will bring down the value of cryptocurrency and its owners will suffer massive losses as they will be forced to sell the currency at a lower price. The apprehension is if the government recognises cryptocurrency somewhere in future, then it will give windfall gains to those persons who will purchase the cryptocurrency now at rock bottom prices.

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