Government Plans to Ban ‘Private Cryptocurrencies’ in India, Create Official Digital Currency

The government has listed a bill that will prohibit “all private cryptocurrencies” in India and provide a framework for creation of an official digital currency to be issued by the Reserve Bank of India. Titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021,” the bill will be considered in the ongoing Budget session of Parliament. The RBI is already exploring the possibility of issuing a digital version of the rupee that could eventually come as the country's central bank digital currency (CBDC) — based on the technological background of cryptocurrencies.

Although adequate details about the planned change are yet to be revealed, the government in the Lok Sabha bulletin on Friday mentioned that the bill was aimed “to create a facilitative framework for creation of the official digital currency” and “prohibit all private cryptocurrencies in India.” It will, however, have certain exceptions that would be “to promote the underlying technology of cryptocurrency and its uses.”

This is notably not the first time that the government has shown interest in banning cryptocurrencies in the country. In April 2018, the RBI had effectively banned cryptocurrency transactions via banks and e-wallets. That move was also backed by the Supreme Court initially, though it later quashed the circular issued by the central bank.

A similar bill was drafted in 2019 as well. A panel was set up that proposed a 10-year prison sentence for persons who hold, sell, or deal in cryptocurrencies including Bitcoin. However, the government didn't bring that proposal to action.

The recent increase in the pricing of Bitcoin has attracted Indians — among their counterparts in other countries — to start trade in cryptocurrency. Several people have also started mining cryptocurrencies in the country to gain some share from their increased adoption. However, the growth in cryptocurrency trading has also brought a surge in frauds as Bitcoin and other such currencies aren't regulated like a traditional currency.

Experts believe that merely proposing a bill doesn't mean that it will get a legal shape any time soon.

“Wrong or hasty regulations will set us back by a decade,” tweeted Nischal Shetty, Founder of Bitcoin and cryptocurrency exchange WazirX. “Right regulations will catapult India to the forefront of this [cryptocurrency] technology.”

The country has WazirX, BuyUcoin, CoinDCX, and CoinSwitch Kuber, among others as leading cryptocurrency platforms that would be directly impacted by the restrictions planned by the government.

Vishal Gupta, Co-Founder of Bitcoin Alliance, predicts that the business of cryptocurrencies will continue — irrespective of the government move.

“Regulating exchanges is a more sensible option that most countries have adopted,” he told Gadgets 360. “Coinbase, an American exchange, is now going public on Nasdaq in America. I hope we are not left chasing and catching up with the rest of the world as always.”

Shivam Thakral, CEO, BuyUcoin, urged the government to take opinion of all the stakeholders before taking a decision.

“We will engage with our peers and other stakeholders to work towards protecting the interest of the industry,” Thakral said in a prepared statement. “We look forward to a constructive dialogue with the government to reach a consensus on creating a positive digital asset ecosystem in India.”

Alongside seeking a way to prohibit cryptocurrencies to some extent, the government is currently exploring the potential of a digital version of the rupee. The RBI noted in a booklet issued earlier this week that it was exploring the possibility as to whether there is a need for a digital version of fiat currency and in case there is, then how to operationalise it.

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