The central government has proposed to present a Bill on cryptocurrency in the upcoming Winter Session of Parliament to facilitate creation of the official digital currency to be issued by the Reserve Bank of India (RBI).
The Bill, titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”, will be up for introduction and passing in Parliament.
According to a Parliament bulletin, “The stated intent of the Bill is 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.
Top sources in the government have been indicating that India might not shut itself completely to the concept and technology involving digital currencies and not take a strident stand like China.
The government was averse to cryptocurrencies being treated as a currency, as currency notes and coins are backed by statute and regulated by the RBI in consultation with the government.
“The currency has the backing of the sovereign. It can be regulated at every level. In case of cryptos getting the status of currency, the problem remains, who will provide the guarantee,” said an official.
First steps towards crypto
The first indication that the government was hunting to set the picture right with safeguards related to cyrptocurrencies came on November 18.
Addressing the Sydney Dialogue, a forum on emerging, critical and cyber technologies, Prime Minister Narendra Modi said, “Take cryptocurrency or Bitcoin, for example. It is important that all democratic nations work together on this and ensure it does not end up in the wrong hands, which can spoil our youth.”
Five days before that, PM Modi had held a meeting on cryptocurrencies with senior officials.
A source said that the popularity of crypto, despite the volatility and risks involved, has signalled that digital currency can be a source of revenue for the government. The earnings could also mean direct tax and GST being levied on services provided by digital currency operators. It could also generate employment.
RBI’s reservations prevail?
The RBI has been voicing its serious concerns on cryptocurrencies since 2017. In July 2017, then RBI governor Urijit Patel had told a parliamentary panel that the central bank was keeping a close watch on transactions involving cryptocurrencies.
Then members of the panel, including BJP MP Nishikant Dubey and BJD’s Bhartrihari Mahtab, had said that the rise in usage of virtual currencies is a matter of concern as it is difficult to establish the source of funds. Patel had informed the members that the RBI had set up an inter-disciplinary committee to discuss the legality of cryptocurrencies.
An RBI circular of April 6, 2018, prohibited banks and entities regulated by it from providing services in relation to virtual currencies. On March 4, 2021, the Supreme Court had set aside the circular,
RBI Governor Shaktikanta Das had recently stated that the central bank had major concerns around cryptocurrencies, which over a period of time have been conveyed to the government.
Despite tall claims by BACC and CII on last Tuesday, Shaktikanta Das, at an SBI event, virtually challenged all the claims and demands of the cryptocurrency stakeholders.
“I would like to reiterate that the number of accounts is exaggerated in the sense that about 70-80% of accounts being cited are small accounts of Rs 1,000-2,000 and even Rs 500. So, anecdotally, and we have a lot of feedback, that while credit and incentives are being provided for account opening, the amount in these ranges between Rs 500-2000,” Shaktikanta Das said.
The RBI chief said he agreed that the value of trading in cryptocurrencies had gone up but “when the central bank says we have serious concerns from the macro economic and financial stability point of view, then there are serious issues involved”.
“I am yet to see serious well informed discussions in public space. At this time, the RBI, as central bank, which is entrusted with the task of maintaining financial stability, after due internal discussion, says there are serious concerns, then there are deeper issues needing much deeper discussions,” Shaktikanta Das said.
Recommendations of SC Garg Committee
The new Bill seems to drawing largely from the recommendations of the SC Garg Committee formed by the Department of Economic Affairs, Ministry of Finance.
The committee, in its report titled “Report of the Committee to propose specific actions to be taken in relation to Virtual Currencies”, had even proposed banning cryptocurrencies.
The committee had noted with concern the mushrooming of cryptocurrencies almost invariably issued abroad and numerous people in India investing in them.
The report had categorically said, “All these cryptocurrencies have been created by non-sovereigns and are in this sense entirely private enterprises and there is no underlying intrinsic value of these private cryptocurrencies due to which they lack all the attributes of a currency.”
The other point the report made was that there is no fixed nominal value of these private cryptocurrencies i.e., neither act as any store of value nor they are a medium of exchange. Since their inception, cryptocurrencies have demonstrated extreme fluctuations in their prices.
There was a sense in the market that following the report of the SC Garg Committee, the date of cryptocurrencies was sealed as it had laid down that private cryptocurrencies should not be allowed. The committee had said the cryptocurrencies cannot serve the purpose of a currency because private cryptocurrencies are inconsistent with the essential functions of money/currency.
Hence, private cryptocurrencies cannot replace fiat currencies, the committee had said.
The committee’s other significant recommendation was that the government should keep an open mind regarding an official digital currency. It proposed the setting up of a group by the Department of Economic Affairs, with participation of the representatives of the RBI, MeitY and DFS for examination and development of an appropriate model of digital currency in India.
If the official digital currency was to get the status of legal tender, the committee had proposed that the RBI should be the appropriate regulator of such digital currency by virtue of its powers under Section 22 of the RBI Act.
The Bill, based on these recommendations in January this year, brought back the jitters of April 6, 2018, when the RBI had barred banks from dealing with cryptos.
Crypto players flexing muscle
The Indian crypto exchanges and industry bodies recently brought out a joint advertisement that claimed crypto investments by Indians have crossed Rs 6 lakh crore and the number of investors had grown exponentially to over 10 crore.
Although a large number of these investments are said to be micro and small, the government is not prepared to go for a tough clamp down.
On last Monday, the Standing Committee on Finance, headed by former Minister of State for Finance Jayant Sinha, met the representatives of crypto exchanges, block chain and Crypto Assets Council (BACC), CII and ASSOCHAM among others. The representatives had made a strong pitch for regulations and clear ground rules for operations.
While the committee members had flagged serious concerns and the need for regulations, none pushed for a ban.
Courtesy – Indiatoday