India Moves A Step Closer To Banning Private Cryptocurrencies
India moved a step closer to ban private cryptocurrencies as it plans to introduce a law to end regulatory uncertainty after the Supreme Court struck down the central bank’s curbs on trading in digital tokens like bitcoin.
A cabinet note seeks a ban on use of cryptocurrencies through a law which would be similar to the one suggested by a panel headed by former Economic Affairs Secretary Subhash Chandra Garg, according to a government official who didn’t want to be identified. The note seeks comments from departments.
The Supreme Court verdict striking down the Reserve Bank of India’s curbs on banks to stop providing services to crypto trading platforms had caused uncertainty about the status of digital currencies in India. The proposed law is aided to provide clarity.
The Economic Times first reported on the cabinet note circulated to ministries.
Once the departments offer their views, the Finance Ministry would introduce the bill in Parliament, the official cited earlier said. There would still be scope for the RBI to introduce its own cryptocurrency or digital rupee, he said.
If there’s opposition to ban cryptocurrencies from departments or lawmakers—when the bill is introduced—the government would take a call if there’s a need to regulate cryptocurrencies. That would mean setting up another panel to explore regulation but this seems unlikely, the official said.
In 2019, the report by the Garg-led panel recommended banning all private cryptocurrencies, except any digital currency issued by the state. Buying, selling or storing cryptocurrencies or issuing related financial products, among others, should be punishable with a fine of up to Rs 25 crore or imprisonment of one to 10 years, or both, the panel suggested.
Regulate, Don’t Ban, Say Crypto Platforms
Digital currency trading platforms, however, said an outright ban will be counterproductive and regulation was a better way of curbing illegal activity using cryptocurrencies.
“There’s no precedence for any government to successfully ban cryptocurrencies because it’s very difficult to track trading and illegal cash exchanges without intermediaries,” Arjun Vijay, chief operating officer and co-founder of Giottus Technologies, told BloombergQuint. “…an umbrella strategy to ban cryptocurrencies will be difficult to implement.”
Mandar Kagade, a fintech consultant, said crypto-to-crypto and crypto-to-cash trading can still take place despite a ban. “You would create a shadow market or shadow economy in crypto-currencies which cannot be monitored.”
Both Vijay and Kagade said the better approach would be to frame guidelines to follow know-your-customer and anti-money laundering law to regulate the crypto exchanges and trading.
The Internet and Mobile Association of India is working on a code of conduct for cryptocurrency companies in India, which has standardised processes for KYC, anti-money laundering and other regulatory aspects, said Nischal Shetty, founder, WazirX. “We have a draft version at present but we want to tweak it and update the guideline in line with the technology changes that have happened in the last few years.”
If the government is concerned about the cash market and how cryptos can be used for criminal or terrorism activities, then a ban is the wrong way to go about it, he said. “As intermediaries we can track various trades, accounts and can help law enforcement identify criminals. We have worked with domestic and international agencies to investigate frauds where cryptos were involved in the past.”