Published: February 16th, 2021
On Thursday, February 11, it emerged that India will go ahead with plans to impose a complete ban on cryptocurrency investments. While talking to the press on condition of anonymity, a Finance Ministry official revealed that the populous Asian nation would give investors between three and six months to liquidate their investments.
Reports coming out of New Delhi show that the Indian government plans to impose a total ban on cryptocurrency investments. According to a senior Finance Ministry official who spoke to the media on the condition of anonymity, India plans to introduce a bill in parliament that seeks to ban the usage of cryptocurrencies in all forms.
According to the official, the ban will include transacting directly using crypto via foreign exchanges. However, the law will not go into effect immediately upon enactment, the official added. He said investors would get a reprieve period of between three and six months to liquidate their holdings.
The government has already listed the Cryptocurrency and Regulation of Official Digital Currency Bill of 2021 for introduction to the current parliamentary proceedings. According to the listing, the bill's purpose is to work out a facilitative framework that allows for the introduction of an official digital currency that the Reserve Bank of India (RBI) will issue.
Besides, the bill seeks to ban the usage of all private cryptocurrencies in India. However, the bill will allow for a few exceptions that promote the underlying technology behind crypto.
Comments by the country's finance minister Nirmala Sitharaman in parliament suggest that the government has not arrived at a final decision. However, citing a 2019 inter-ministerial workgroup's recommendations, the minister said the bill coming to parliament would factor in the work group's suggestions. Whatever legislative process that ensues will abide by the relevant due processes, she added.
However, the official who tipped the press said India plans to model its proposed law on China's cryptocurrency regulatory framework. Beijing has banned all forms of crypto trading and usage while working on a modality of issuing a virtual currency.
In 2017, China banned initial coin offerings (ICOs) and instructed crypto exchanges to shut down. The central government has also moved to block domestic and foreign exchanges. ICO websites are also blocked in China.
While India looks determined to take after China's stern stance, it will not ban the technology behind cryptocurrencies. Instead, it will encourage interested parties to apply blockchain technology in research and other relevant purposes.
The source said the proposed law would soon be forwarded to the Union Cabinet for approval before making its way to the country's legislature.
The latest development has thrown the country's cryptocurrency sphere in a state of turmoil once again. Trading platforms are now anxiously waiting for details of the bill before deciding the next course of action.
Sathvik Vishwanath, the co-founder and CEO of Unocoin, India's first crypto exchange, said if the government proceeds to ban all cryptocurrencies except the RBI-issued coin, it will not make economic sense to continue operating in India. However, he added that the industry would wait for the final decision.
The CEO said cryptocurrency prices slumped by about 30% at the end of January when news of the intended ban first erupted. However, Tesla's announcement of its activity in Bitcoin helped stabilize the prices.
Vishwanath said that investors understand that the ban will not come into effect immediately after enactment. Because of the said arrangement, he does not expect to see immediate overselling.
India does not have a cryptocurrency regulatory framework presently. The country has had a lot of back and forth on the issue in the past three years. In 2018, the RBI effectively banned cryptocurrency transactions in the wake of a series of frauds just months after Prime Minister Narendra Modi's sudden ban on 80% of the nation's currency.
The RBI ban included a decree to banks and other regulated entities to desist from working with crypto exchanges. The exchanges responded with a lawsuit in the Supreme Court in September the same year. In March 2019, the court overturned the RBI's ban, allowing the country to move towards a regulated cryptocurrency working space.
However, the country's legislature has not managed to develop a framework or set up regulations to guide the new but thriving environment. Instead, through a committee set up in 2017 and led by Subhash Chandra Garg, who was then the country's Economic Affairs Secretary, the government studied the issues related to crypto. It recommended a total ban on all virtual currencies. The committee's final report, which was released in 2019, added to the confusion that characterizes India's cryptocurrency sphere.
The latest attempt to ban crypto usage has resurrected a civic campaign that became popular in 2018 when the RBI first banned virtual currencies. The hashtag #IndiaWantsCrypto is trending once again.
The hashtag is part of a broader lobbying campaign by the country's young generation. Most millennials are crypto enthusiasts who relish the potential of crypto and are disturbed by the government's intentions to stifle such developments.
Despite the gloom that the new announcement has bred, industry players are hopeful that some good may come out of the country's lengthy legislative process. Typically, a bill takes quite a walk before it becomes law in India.
After cabinet consultations, the draft will go to the various ministries for feedback before finding its way into the parliament. And even in the country's legislature, it has to get nods from the House of the People – Lok Sabha and the Council of States – Rajya Sabha.
India is once again contemplating banning cryptocurrency usage. A source from the Finance Ministry told the press that a bill would soon be presented to parliament. However, if the proposed law is enacted, investors will get a grace period of three to six months to liquidate their cryptocurrency holding.