Government Decides to Make Cryptocurrency Ban Explicit

The Reserve Bank of India (RBI) has always been wary of accepting cryptocurrency. Though there are no defined laws around cryptocurrency trading in India, it was said to be made legal. However, RBI had barred financial institutions from facilitating transactions that involve cryptocurrencies in 2018.

In a recent development, the government has planned to release a bill that will explicitly ban all private cryptocurrencies, such as bitcoin. This move has been initiated as the Central Bank believes that allowing private entities to play with currencies can potentially tremble the country’s financial sector.

As part of the ban proceedings, the Lok Sabha has been framing ‘The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’. The bill supposedly intends to:

1. Create a framework to develop an official digital currency issued under RBI.
2. Prohibit all private cryptocurrencies in India.

However, you can expect certain exceptions to promote the technology underlying cryptocurrencies and their uses. 

In a positive light, the said bill has the potential to officially launch digital currencies and build an ecosystem for its growth in India. This will also facilitate legal support for the digital currency and remove any ambiguities around it.

The RBI circular barring financial institutions from offering services in virtual currencies was dismissed by the Supreme Court last year. This move leads to the concern that we do not have adequate legal backing required to deal with the private cryptocurrencies and the providing parties. 

The main risk involved with cryptocurrencies is that their value is not dependent on any underlying assets. The value is completely dependent on how much an investor is willing to pay for it. Therefore, the prices can be easily swayed with speculative bids. Further, the concept keeps the owner’s identity hidden, making it difficult to track the transaction flow. It may turn out to be a great hole for black money and attract security risks.

Though the central bank’s initiative to bring in an organised, government-owned digital currency is commendable, the move has created chaos among the investors who have already been dealing with private cryptocurrencies. Social media has been flooded with opposition to the ban. People have been requesting the government to weigh all the options before passing the ban order.

Also, there are numerous requests to the government to leave some time to transition from their cryptocurrencies. We only have to wait and watch if the government considers these requests and how well they will frame the upcoming RBI-controlled digital currency.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in