Cryptocurrencies in India: Regulatory Framework
Cryptocurrencies and the Blockchain technology that underpins them are widely regarded as ground-breaking and transformative. However, not only the governments of various countries, but also the citizens of various parts and cultures, have responded differently to this unparalleled phenomenon, and everyone has seen Cryptocurrencies through their own lens. Adv. Ms. Veeral Mehta is a Financial Regulations expert. An effort has been made to analyse and contextualise this phenomenon through a series of articles written by her, focusing on primary and secondary analysis. A series of these papers will provide audience with information on the positions held by various countries. What regulatory mechanisms have they developed or are developing in favour of or against Cryptocurrencies? In comparison, it is essential to evaluate the divergent perspectives of the investment class, crypto goods and service providers, and, on the other contrary, the Government of India and the Reserve Bank of India.
This article aims to demonstrate not only the pros and cons of fiat currency in comparison to crypto currencies, but also the position and perspective of fiat currency policymakers in terms of customer security, structural and financial threats, and the mechanism of minimising these consequences. The papers also speculate on whether cryptocurrencies can be classified as trade finance, investments, or services.
Bill Gates made the statement in 1994 that “banking is important, but banks are not.” He predicted that, while banking facilities would be needed, the traditional brick-and-mortar bank would become redundant. Consumers remain uncertain about expectations and legitimacy, and there is the risk of further stringent/ onerous legislation being enforced later. Due to the lack of oversight, there is a belief that cryptocurrencies are often used as a tool or tactic to promote illegal activity, which makes legitimate companies wary of investing with cryptocurrencies.
India has the opportunity to lead the global landscape by launching a campaign for the formation of a global initiative to standardise the technological and legal dimensions of cryptocurrencies. It all revolves on how the Indian government and relevant institutions react to possible opportunities in the future.
India has set an ambitious target.
This article discusses the Reserve Bank of India’s (RBI) and Government of India’s (GoI) powerbeats to a nationwide ban on all cryptocurrencies, with the exception of having a right for themselves to launch a decentralized authorized Digital Currency supervised by the RBI.
Background- Inter Ministerial Committee
In 2013, cryptocurrencies began to gain traction in India. Several cryptocurrency exchanges began running between 2012 and 2017. Famous exchanges like Zebpay, Coinsecure, Unocoin, Koinex, Pocket Bits, and Bitxoxo were among them. The technology drew the interest of global regulators when the price of the cryptocurrency began to rise and it was embraced by a significant number of consumers, making it more common.
Shri Subhash Chandra Garg, Secretary, Department of EA (Economic Affairs), Ministry of Finance, chaired a high-level IMC in November 2017 that included Ministry of Electronics and Information Technology), Shri Ajay Prakash Sawhney (Secretary )and Shri B.P. Kanungo (Deputy Governor, RBI), Shri Ajay Tyagi (Chairman, SEBI). The Committee’s mission was to look at a variety of topics around virtual currencies and make recommendations on concrete steps that should be taken. On the 28th of February, 2019, this Committee issued a report proposing that private cryptocurrencies be banned in India.
Parallel to the activity of the IMC, the RBI and the Government of India have taken arbitrary steps.
Following the formation of the IMC on November 2, 2017, both the RBI and the Ministry of Finance released press releases on December 5, 2017, expressing concern the general public about the hazards and threats associated with cryptocurrencies. with the Finance ministry Media Release fallaciously voicing something that was said in the United States years earlier and has since been proved false, namely that cryptocurrencies are like hedge funds.
People who had acquired cryptocurrencies on these transactions as an investment were compelled to liquidate their crypto assets and cash out before they restricted access to credit facilities as the operations of cryptocurrency exchanges were severely harmed and the number of transactions on these exchanges significantly decreased.
“Banning of cryptocurrencies and enforcement of Official Digital Currency Bill, 2019” is a draught bill.
When the draught bill was written, the issue of banning cryptocurrencies was already pending before the Supreme Court, and the lawsuit opposing the ban had not yet been decided. Furthermore, a concerted approach to suffocate cryptocurrencies is emphasised, beginning with the RBI issuing “warnings” and progressing to outright bans by controlling all banking institutions in India so an order to prevent the facilitation of any cryptocurrency transactions The government drafted the above-mentioned bill well before the Supreme Court ruled that such a circular should be overturned.
India’s road map: Cryptocurrencies with a higher rate of return
Cryptocurrencies are one-of-a-kind financial instruments in that they can be used as both a payment method and a form of protection. The valuation of cryptocurrencies, on the other hand, is not necessarily tied to any real-world properties. Their worth is inextricably linked to production and consumption.
Regulating Cryptocurrencies: What Are the Goals?
In general, conventional financial sector supervision is inspired by three goals:
- Security of the consumer
- Regulatory Prudence
- System – wide risks and credit worthiness
There is a need for a multinational body to standardise cryptocurrency legislation.
Cryptocurrencies are uncontainable within a jurisdiction’s borders. They are common around territorial boundaries, and unlike most conventional financial schemes or funds, they are global transactional in nature. In addition, the majority of cryptocurrencies can be bought in fractions.
A global body to standardise cryptocurrency regulations is needed.
Cryptocurrencies are uncontainable within a jurisdiction’s boundaries. Unlike other conventional financial systems or funds, they are universal beyond borders and boundaries – internationally transactional in nature. Furthermore, the majority of cryptocurrencies can be bought in fractions. Digital currency conceptualisation is essential so that applicable regulatory bodies and certain current laws can be mapped contingent on redefinition
Right from the outset, the approach RBI, several ministries and agencies of the Government of India, and the judiciary have dealt with cryptocurrencies reveals a significant information deficit, as well as a limited understanding of what cryptocurrencies are and how effectively many countries have evolved rules, classified cryptocurrencies, adhered to FATF guidelines, and rendered this ingenious technology accessible.
In its decision in IMAI vs. RBI, the Supreme Court essentially established a key benchmark for deciding the constitutionality of a regulatory action. Before barring a financial good or service, regulators must show that it would pose real harm to consumers, the general public, or India’s financial stability. This does not rule out the likelihood of a potential ban on cryptocurrencies in India; however, the uncertainties surrounding cryptocurrency and the RBI’s negative stance on the subject have effectively ruled out the possibility of such businesses establishing themselves in the nation. India would fall behind the curve in reaping the rewards of this industry unless the RBI and the Central Government take advantage of this chance to draught a fair legislative structure for those wishing to issue, mine, or exchange in cryptocurrency.
Author: Anshul Sharma,
Navrachana University/ BTech- Electrical Engineering