Published: June 17th, 2020
The Indian government may be considering banning cryptocurrencies. Reports indicate that the Finance Minister has started inter-ministerial consultations to conclude the process. The move is supposedly fanned by the decision by the Supreme Court of India quashing the ban that the Reserve Bank of India (RBI), the country’s central bank had imposed on commercial banks. Such a development is not only surprising but also confusing. The Supreme Court of India only recently overturned RBI’s decree to banks to deny cryptocurrency-related businesses various forms of services.
India seemingly is considering a ban on cryptocurrencies once again. According to the English Times, a leading English Language publication based in Mumbai, the country is considering reintroducing a bill to disallow cryptocurrencies.
The government is working on the bill’s modalities since it has realized that a legal framework is the best approach. According to the publication, a parliamentary route will provide more traction to the government’s objectives than a circular from the central bank.
The Economic Times cited a senior government official who said that the Finance Minister has already moved a note for inter-ministerial consultations. The draft note was prompted by the Supreme Court of India’s ruling on March 4, quashing a circular by the country’s central bank issued in April 2018. The circular instructed banks not to offer services to cryptocurrency businesses such as crypto exchanges and crypto news outlets.
The details about the legal framework the government may adopt are sketchy. However, sources close to the action say the note referred to here may take the shape of a bill that a former finance secretary once put before the country’s legislature.
In July 2019, at the height of the clamour for proper legislation in the crypto industry, the Finance Secretary then, Subhash Chandra Garg, published a bill titled Banning of Cryptocurrency & Regulation of Official Digital Currency Bill 2019.
The cryptocurrency space in India is divided over the merit of the new developments. Nischal Shetty, the CEO of WazirX, an India-based subsidiary of Binance, said that he is confident that the prime minister, Narendra Modi, will not stop a booming segment of the economy.
Shetty urges industry players to be calm, noting that the plan is just a note. He added should the proposal progress, legislation is a long and strenuous process that will involve a committee and a draft bill. Besides, the process must consider the input of industry players before the draft bill can be presented to the legislature for debate and approval.
The exchange CEO chose a more optimistic approach, saying that he does not think a blanket ban on cryptocurrencies is possible now. He said that all that is going around is leaked information.
Admitting that there is commotion regarding legislating the cryptocurrency industry, he added that no one has enough clarity on whether the government is contemplating a ban or forging ahead with pro-crypto legislation.
Shetty said that based on his circles within government, he believes the finance secretary is consulting with other departments to determine the next appropriate regulatory steps. He confided that he had met senior government officials, and the gist of the conversations is that banning crypto is counterproductive from the government’s perspective.
People who do not understand technology are predisposed to talk about it negatively, Shetty added. He concluded by giving the industry a douse of much-needed hope, wondering how anyone in their right minds would think or talk about banning a technology that technically cannot be prohibited.
Tanvi Ratna, the founder and CEO of Policy 4.0, a Bangalore-based think tank concentrating on the blockchain and cryptocurrency-related issues, echoes Shetty’s thoughts. According to her, the consultancy process is lengthy. Besides, if the parties involved agree to forge ahead, there is still a parliamentary process to contend with.
Tanvi contends that now is the right moment for the industry to understand the legislative processes around digital assets and engage constructively.
Despite the Supreme Court ruling, industry experts say that a lot more still needs to be done and that the proposed note only opens up the environment for constructive dialogue. According to Amit Maheshwari, a partner at AKM Global, several banks do not allow payments for cryptocurrency-related trades in both India and abroad.
And, where banks process such payments, they prefer to receive specific communication from the RBI. However, transactions take place through other channels.
Amit added that the proposed rules of 2019 draft law are retrogressive. The 2019 bill would have made it illegal to hold, issue, sell, mine, transfer, or use cryptocurrencies. The bill also proposed a 10-year jail term and a fine of up to INR 25 Crore (Approx. $3.3 million) for individuals found guilty.
Amit hopes that the government will undertake stakeholder consultations. Saying that the 2019 bill in its unmodified state is backward, the renowned accountant, added that it would be a miscalculation on the government’s part to reintroduce it as is.
Amit is among the many stakeholders in the blockchain space in India that are worried that a ban on Bitcoin and altcoins may erode the gains seen this far. The industry has recorded growth and new investment after the supreme court ruling.
In May 2020, two cryptocurrency exchanges went live while existing exchanges reported an increase in both volume and customer base by up to a factor of ten.
According to a note by India’s finance secretary, the country is contemplating banning cryptocurrency. This development comes only months after the Supreme Court of India overturned a ban imposed by the Reserve Bank of India instructing banks to stop doing business with cryptocurrency-related business. If the note indeed aims to ban cryptocurrency, it would be a big blow to an industry that is booming. However, at this stage, it is too early to tell the true intentions of the government.