The Lok Sabha (India’s lower house of parliament) has released its Parliamentary Bulletin on January 29, 2021 (“Bulletin”). The Bulletin prescribes the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 (“Cryptocurrency Bill”) as government legislative business which is expected to be taken up during the 5th session of the 17th Lok Sabha, 2021. Indian government’s tryst with cryptocurrency has been long going since April 2018 when the Reserve Bank of India (‘RBI’) had released a circular prohibiting entities that were regulated by the central bank to deal in ‘virtual currencies’. The said circular was overturned by the Supreme Court of India in the case of Internet and Mobile Association v. Reserve Bank of India on March 4, 2020, (“IMAI Ruling”) waving a first relief path for cryptocurrencies businesses in India. However, ever since, neither the RBI nor the Ministry of Finance has taken any action or provided any clarity on the regulatory regime for cryptocurrencies in India. On November 2, 2017, the Ministry of Finance had set up an inter-ministerial committee on virtual currencies (“IMC”) which submitted its report dated February 28, 2019, along with the Draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 (‘Banning Bill’). The Banning Bill made the Indian government’s agenda for cryptocurrencies clear by imposing hefty penalties of INR 25 crore and also imprisonment for dealing or mining cryptocurrencies. However, it is not clear if Cryptocurrency Bill and Banning Bill are identical. It would now appear that the government, despite the IMAI Ruling, is adamant about prohibiting cryptocurrencies through the introduction of the Cryptocurrency Bill. The Bulletin defines the purpose of the Cryptocurrency Bill to “create a facilitative framework for the creation of official digital currency to be issued by the Reserve Bank of India” and “prohibit all private cryptocurrencies in India”. However, the Cryptocurrency Bill would allow certain exceptions to “promote the underlying technology of cryptocurrency and its uses”. This essentially means that the government may be underway to create a regulatory framework for introducing a digital currency in India.
Recently, the RBI in its booklet on Payment and Settlement Systems in India had also acknowledged that the central bank would initiate discussion on the ‘need’ for introducing a central bank digital currency (‘CBDC’). As discussed in our earlier article, various countries such as Sweden, Bahamas, China, and even the European Union, has formulated specific plans for the introduction of a CBDC with the former nations have rolled out a pilot regime for the same. If the Cryptocurrency Bill is passed, no person can mine, generate, hold, sell, transfer or dispose of private cryptocurrencies or use it as a medium of exchange, store of value, and unit of account. The CBDC issued by the other central banks in a foreign jurisdiction would be recognized as a foreign currency.
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In the event the Indian government prohibits the issuance of private cryptocurrencies, cryptocurrency exchanges will be required to withdraw their operation from India. As per the IMAI Ruling, the IMC, in its initial report, which was submitted as a precursor to the Banning Bill, had suggested the introduction of Crypto Token and Crypto Asset (Banning, Control and Regulation) Bill, 2018 (“Crypto Token Bill”). The purpose of the Crypto Token Bill was to regulate the sale and purchase of cryptocurrencies on a recognised exchange. As per the record of the discussion on the meeting held on November 22, 2017, it was agreed that the banning option was too difficult as it may drive some operators underground which may encourage its usage for illegitimate purposes. Thereafter, as per the record of the discussion on meeting on virtual currencies held on February 22, 2018, the Deputy Governor of the RBI argued in favour of banning cryptocurrencies and the banning option was eventually accepted.
Till now, the countries which have either prohibited the circulation of private currencies (extent of ban varies) include Nepal, Algeria, Bolivia, Macedonia, etc. On the other hand, the countries which have taken a step to regulate or recognise cryptocurrencies include the United States, Japan, Singapore, Canada, Germany, France, Russia, etc.
However, the Government of India has not disregarded blockchain, the underlying technology behind cryptocurrencies, and has in fact advanced regulatory principles for the same. This is clear from the wording of the purpose of the Cryptocurrency Bill and also the introduction of Tamil Nadu’s Blockchain Policy, 2020. However, even then the promotion of blockchain and advancement of its use cases has not been observed in Indian governance functions. The Election Commission of India has been reported to collaborate with the Indian Institute of Technology, Madras to develop a blockchain voting system that would allow voters to vote away from their respective constituencies. However, the same is yet in the pilot stage.
Authored by Shivani Agarwal, Founder, and Samaksh Khanna, Co-founder.
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