A considerable shift in India’s stance on digital currencies

India wants to regulate cryptocurrencies but is wary of the potential.

 

Key Takeaways

  • The cryptocurrency and regulation of the official digital currency bill, 2021 is listed for introduction in the ongoing winter session of parliament in India.

  • Finance Minister, Nirmala Sitharaman clarified that the officials are open to all kinds of experiments that will have to take place in the crypto world.

  • The Prime Minister of India, Narendra Modi called for a meeting recently to take progressive and forward-looking steps in the regulation of cryptocurrencies.

  • Sitharaman stated that Bitcoin will not be accepted as a legal tender in the country and the officials do not collect data on BTC transactions.

india's flipping stance on cryptocurrency

The Indian government’s stance on digital currencies has changed significantly in the last few years. The cryptocurrency and regulation of the official digital currency bill, 2021 is listed for introduction in the ongoing winter sessions of parliament long with 26 other bills. The winter session of parliament began on Nov 26 and is likely to continue till Dec 23 during which the crypto bill is going to be finalized in the country.


The regulatory journey of cryptocurrency in India

The Reserve Bank of India (RBI) issued a circular warning the people against the use of cryptocurrencies in 2013. The bank warned users, holders, and traders of digital currencies about the potential financial, operational, legal, security-related risks they are exposing themselves to. The central bank mentioned that it has been keeping a close eye on the developments of the virtual currency world, including Bitcoin and altcoins.


As the Indian banks continued to allow transactions on cryptocurrency exchanges, RBI released another circular in Feb 2017 reiterating its concerns with cryptocurrencies. By the end of 2017, the central bank clarified that virtual currencies are not legal tender in the country. At the same time, two public interest litigations (PIL) were filed in the Supreme Court. While one PIL was asking for a complete ban on buying and selling cryptocurrencies, the other PIL was asking for them to be regulated. The government formed a committee to study issues around virtual currencies to propose suitable actions.


In 2018, RBI issued a circular that restrained banks and financial institutions from providing financial services to cryptocurrency exchanges. At the same time, a committee appointed by the finance ministry proposed a draft bill for the regulation of cryptocurrencies instead of a ban. In March 2020, the Supreme Court of India lifted the restrictions imposed on banks and financial institutions by the RBI and allowed banks to provide their services to those who engaged in crypto transactions.


At the beginning of 2021, a report surfaced in India stating that the government could propose a law banning cryptocurrencies and people who trade or hold digital currencies in the country will be fined. Days after, the finance minister Nirmala Sitharaman said she wants to strengthen innovation in crypto. “We want to make sure that there is a window available for all kinds of experiments which will have to take place in the crypto world. We are not closing our mind”, said Sitharaman in an interview on March 5. In November, the Standing Committee of Finance met representatives of crypto exchanges along with the Blockchain and Crypto assets Council (BACC) and came to a conclusion that cryptocurrencies need to regulate but should not be banned.


Indian Prime Minister on cryptocurrencies

The prime minister of India, Narendra Modi called for a meeting earlier in November with senior officials on a way forward for managing the cryptocurrency sector. Several concerns were raised over the attempts to mislead the youth through over-promising and non-transparent advertising in the virtual currency space. The government has decided to take progressive and forward-looking steps while making sure that an unregulated crypto market does not lead to money-laundering and terror financing.


During a virtual summit hosted by US president Joe Biden, Modi stated “We must jointly shape global norms for emerging technologies like social media and cryptocurrency so that they are used to empower democracy, not to undermine it. By working together, democracies can meet the aspirations of our citizens”. He urged democratic nations to work together to ensure that cryptocurrency does not end up in the wrong hands in his virtual address at Sydney Dialogue on November 18.


Virtual currencies are not accepted as payment

The finance minister, Nirmala Sitharaman termed cryptocurrencies as a risky area and said that they are yet to take a call on advertisements around cryptocurrency. She further stated, “This is a risky area and not in a complete regulatory framework. No decision was taken on banning its advertisements. Steps are taken to create awareness through RBI and SEBI. The government will soon introduce a bill”.


While speaking at the Hindustan Times Leadership Summit in 2021, the minister reiterated that unregulated speculation about the developments in the crypto space is unhealthy. While responding to a query in the Parliament in November, Sitharaman clarified that there is no proposal to recognize Bitcoin as a currency and also confirmed that the government does not collect data on Bitcoin transactions.


According to the finance minister, the new crypto bill is yet to be approved by the Cabinet, the highest decision-making body in India. The crypto bill was listed in the 10th position stating “To create a facilitative framework for the 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”. The finance minister stated that this description belonged to the old draft of the bill. The new draft is totally reworked and it will be presented to the cabinet during the current winter session.


In the meanwhile, A tweet from the prime minister’s accounts was posted on Dec 12 stating “India has officially adopted bitcoin as legal tender. The government has officially bought 500 BTC and is distributing them to all residents of the country”. It turned out to be false as the Twitter account has been compromised.


What lies ahead?

Regulation of cryptocurrencies in India has a long history and it took so many turns along the way. Though the officials have confirmed that the crypto bill is on its way, it's impossible to know what the final version of the bill looks like. However, the government has three options outside of a blanket ban - allowing all categories of crypto use cases, a partial ban on cryptocurrencies, or allowing a few use cases within a regulated framework.