Government may introduce law to ban private cryptocurrencies

The union government is in the process of introducing a law to ban the use of private cryptocurrencies. A cabinet note has been circulated to seek comments from various ministries, a person aware of the development said.

The draft law would thereafter need the cabinet as well as the Parliament’s nod.

The development comes soon after the Supreme Court in March lifted the ban imposed by the Reserve Bank of India (RBI) on virtual currency trading, including cryptocurrencies. The circular issued by the central bank in July 2018 said that entities regulated by RBI are prohibited from “providing any service in relation to virtual currencies, including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies". However, it had not banned virtual currencies.

Last July, an inter-ministerial panel set up by the government on virtual currencies had proposed banning of private cryptocurrencies, barring any digital currency issued by the government by enacting a law and imposing fines and penalties, including jail-term, for trading in cryptocurrency. The panel comprising officials from the finance ministry’s department of economic affairs, the ministry of information technology, and the central bank finalized a report and a draft bill, Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019, on virtual currencies. However, it is yet to be implemented.

Many in the industry feel banning cryptocurrencies is a backward move and will only impact legal users. “Even when cryptocurrencies were banned in India trade was happening. Allowing it in a more legalised manner will allow government to keep track of transactions. Banning will only affect people who do legitimate transactions,” said Vishal Gupta, CEO Search Trade, a crypto based startup.

After the covid-19 outbreak, public sentiment towards digital currencies has been positive. A global survey by The Tokenist, a cryptocurrency think tank, published in April, found a growing trust in Bitcoin over traditional investments like gold, stocks, and real estate.

Many feel instead of banning, government should find a way to regulate digital currencies. “A thoughtful regulatory approach will also ensure India's competitive edge is maintained in a similar fashion to other countries in Asia such as Singapore and Japan, who have taken forward-looking approaches to regulating digital assets, which in turn has triggered innovation and encouraged more enterprise use cases of digital assets,” said Navin Gupta, Managing Director, South Asia & MENA at Ripple, a Blockchain startup.

Internet and Mobile Association of India (IAMAI) and its members are working on creating a Self-Regulatory Organisation (SRO) to set industry standards, follow best practices that can maintain competitiveness and mitigate risk at the same time.

"We understand the concerns of the government on the misuse of cryptocurrencies, but banning them would lead to Indian users moving on to global platforms for transactions and India missing the opportunity to be a global leader. India accounts for 15% of the crypto-asset market globally and it is best that Indian entrepreneurs operate out of India following Indian rules so that the talent stays in India, rather than Indian customers using exchanges located outside India," said Naveen Surya, Chairman, Fintech Convergence Council & Chairman Emeritus, Payment Council of India.

Cryptocurrencies are also banned in China, however, in April, China started testing its official digital currency issued by People’s Bank of China. Cryptocurrencies are legal in US but are not considered legal tender.