Cryptocurrency regulation: what India can and cannot allow

While cryptocurrencies are a very serious concern from the point of view of macroeconomic and financial stability, Das reiterated his stance as recently as a few days ago, saying that “virtual currencies involve “very deep issues” which can create a situation where threat to India’s economic and financial stability.”

On the other hand, Prime Minister Narendra Modi recently chaired a high-level comprehensive meeting where he expressed concern about unregulated crypto markets becoming avenues for money laundering and terror financing.

It was also agreed during the meeting of the Prime Minister that how to stop the advertisements that are making more promises to the young investors and misleading them.

The Parliamentary Standing Committee for Finance has met various stakeholders and experts, in a first for a panel on cryptocurrency and related issues. The panel emphasized the regulation of crypto but did not completely close the door on them.

Members of the parliamentary panel are said to have wanted government officials to appear before it and address their concerns. It was agreed that a regulatory mechanism should be established to regulate cryptocurrencies. Industry associations and stakeholders were not clear on who should be the regulator

The MPs (MPs) have expressed concern over the safety of investors’ money.

Amidst all these developments, there are reports that the government may bring a cryptocurrency bill in the winter session of Parliament. The proposed bill will focus on protecting investors as cryptocurrencies fall under a complex asset class category.

In the meantime, let’s see what India can and cannot allow in terms of crypto.

For starters, India has had a hot and a cold relationship with digital currencies over the years. In 2018, it effectively banned crypto transactions following a string of frauds following Modi’s abrupt decision to liquidate 80% of the country’s currencies, but the Supreme Court lifted the ban in March 2020.

After the Supreme Court overturned the RBI order, which effectively lifted the ban on cryptocurrency trading in India, the craze in the country has increased at a furious rate.

Subsequently, on February 5, 2021, the central bank constituted an internal panel to suggest the model for the central bank’s digital currency.

An inter-ministerial panel on cryptocurrencies, headed by the Secretary (Economic Affairs), had recommended that all currencies except those issued by the state should be banned.

The Reserve Bank of India (RBI) has repeatedly reiterated its strong views against cryptocurrencies and said that they pose a serious threat to the country’s macroeconomic and financial stability and with the number of investors trading on them- Also doubt their claimed market value.

Currently, there are no specific rules or any restrictions on the use of cryptocurrencies in the country. The central government is yet to legislate on crypto, but is in consultation with industry experts, comments from various officials and ministers.

After several rounds of caution, the government may want to set some limits for crypto in India in the public interest at large. However, from the recent Prime Minister’s meeting, the overall view within the government is that the steps taken will be proactive, “progressive and forward-looking” as cryptos represent an evolving technology.

The crypto community has made several representations to the Indian authorities to classify it as an asset rather than a currency in order to gain acceptance and avoid sanctions.

A report in the Economic Times said that the government is exploring the possibility that cryptocurrencies could be banned for transactions or payments, but holding them in the form of assets such as gold, shares or bonds. may be allowed.

According to the same report, the Securities and Exchange Board of India (SEBI) may be named as the regulator, though it has not been finalized.

According to blockchain data platform Chainalysis, India’s digital currency market was worth $6.6 billion in May 2021, compared to $923 million in April 2020.