New Delhi: Cryptocurrency is not legal tender in India but the government will explore its underlying technology, called blockchain, to usher in the digital economy, finance minister Arun Jaitley said on Thursday while presenting Union Budget 2018.
The government will take measures to eliminate use of crypto-assets in financing illegitimate activities or as part of the payment system, the finance minister said. The focus, however, would be on the distributed ledger system or blockchain technology that allows organization to record and authenticate transactions without the need of intermediaries.
Both governments and banks are grappling with how to deal with cryptocurrencies, such as bitcoin. Some of the dangers cited are to do with privacy, security and volatility in price. Countries like Japan and China have cracked down on cryptocurrencies while South Korean policymakers said they were considering shutting down domestic bitcoin exchanges. In the US, privacy issues could be a problem while both Germany and Singapore are wary since there was no regulatory protection for investors.
India has always been opposed to cryptocurrency, claiming that they can be a channel for money laundering and terrorist financing. Nevertheless, according to reports, the Reserve Bank of India (RBI) has a group studying whether digital currencies backed by global central banks can be used as legal tender.
In India, the use of cryptocurrency is a violation of foreign-exchange rules and the income tax department has sent tax notices to thousands of people dealing in cryptocurrency after a nationwide survey showed more than $3.5 billion worth of transactions have been conducted over a 17-month period.
Even social media companies like Facebook announced that it was banning all ads related to cryptocurrencies in an effort to fight scams. According to the updated advertising policies, Facebook said it is barring ads for “financial products and services that are frequently associated with misleading or deceptive promotional practices, such as binary options, initial coin offerings and cryptocurrency".
“Following the repeated cautionary circulars issued by the government and the regulators, the move to not consider cryptocurrencies as legal tender as part of today’s Budget announcement will not only address these complexities on an immediate basis but it will also go a long way in eliminating every risk related to the use of crypto assets in India thereby securing the country’s economy," said Kartik Shinde, partner cyber security, financial services, EY.