The Reserve Bank of India has remained adamant in its opposition to the use and adoption of cryptocurrencies in India. The central bank had previously warned users about the financial, operational, legal, customer protection, and security risks associated with virtual currencies in 2013 and 2017. It effectively outlawed cryptocurrency in April 2018.
The government’s likely ban on bitcoin and other cryptocurrencies ahead might lead to an exodus of crypto startups from India to favourable ecosystems around the world along with crores of Indian investors who might start transacting on international exchanges, according to Ajeet Khurana, a prominent cryptocurrency expert. Khurana was earlier the head of the blockchain and cryptocurrency committee at the Internet and Mobile Association of India (IAMAI) and former CEO at cryptocurrency exchange ZebPay. “The foreign exchanges won’t care about the ban. Eventually, many Indian crypto businesses might move abroad due to the ban. Moreover, investors who live in small cities and had put, let’s say, Rs 5,000 or Rs 10,000, all of them will start transacting on international exchanges even as government cannot reach out to them individually. So, effectively the move will take millions of dollars of crypto transaction volume and gift it to international exchanges,” Khurana, currently the Venture Partner and Global Expert at Blockchain Founders Fund, told Financial Express Online in an interaction. The fund, based in Singapore, invests in businesses engaging with blockchain technology.
According to a bulletin of the Lok Sabha in January for the budget session, the government is soon expected to introduce a Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 to ban all “private cryptocurrencies” in the country such as bitcoin except “for certain exceptions to promote the underlying technology of cryptocurrency and its uses,” the legislation had read. The bill, nonetheless, intended to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India.” However, Finance Minister Nirmala Sitharaman earlier this month talking to CNBC TV18 had said that the government wants to make sure that there is a window available for all kinds of experiments that will have to take place in the crypto world.
However, the Reserve Bank of India had continued to take a tough stance on the usage and adoption of cryptocurrencies in the country. Back in 2013 and 2017, the apex bank had cautioned users against the possible financial, operational, legal, customer protection, and security-related risks in virtual currencies. In April 2018, it had virtually banned cryptos. RBI had asked all regulated entities to stop dealing in virtual currencies or offering services such as registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them, etc. Nonetheless, the ban was quashed by the Supreme Court in March last year even as the RBI’s argument here was that cryptos use would fundamentally undermine the credit system and monetary stability of India. In an interview with CNBC TV18 as well in February 2021, RBI Governor Shaktikanta Das had said that the central bank has ‘major concerns’ about crypto-related risks to financial stability.
“The RBI’s opinion has to be taken seriously. In light of that, the government may be compelled to take prohibitive action. What can the government do because this is a problem for them. I hope the government has understood that there is a difference between cryptos and crypto investors and service providers. It cannot ban cryptos, it is impossible. You can still ban the internet but not crypto. At best, you can ban crypto businesses such as exchanges,” said Khurana.
In a written reply to a question in the Rajya Sabha on Tuesday, Minister of State for Finance Ministry Anurag Singh Thakur had said that the government will be taking a decision on the recommendations made by the Inter-Ministerial Committee (IMC) on cryptocurrencies in India. Accordingly, a legislative proposal, if any, would be brought before the Parliament. Importantly, the IMC, which was headed by the former secretary at the department of economic affairs, had proposed action on cryptocurrencies back in February 2019. However, “Garg had last year said that cryptos should be regulated as an asset class. This is interesting that the architect of the report himself is asking for regulation,” said Khurana.