Why has the latest bill regarding digital currencies, which is to be introduced in Parliament, causing widespread distress among crypto-investors?
the story So Far: A bill that the Center is going to introduce in the winter session of Parliament has left investors in crypto worried. Cryptocurrency prices across the board fell by up to 20% following news of the Center’s new cryptocurrency bill hitting the market on Wednesday. The details of the bill are yet to be revealed, with many investors hoping there will be no widespread restrictions on cryptocurrencies.
Summary
- A bulletin issued by the government on Wednesday said that the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 “will create a facilitating framework for the creation of an official digital currency to be issued by the Reserve Bank of India.” It also seeks to “ban all private cryptocurrencies in India”, except for a few “to promote the underlying technology of the cryptocurrency and its use”.
- If so, it would be illegal to buy goods and services using any cryptocurrency and people would only be able to speculate on the price of the cryptocurrency.
- However, crypto enthusiasts still argue that cryptocurrencies can serve as an asset like gold or silver that helps people protect their wealth from inflation.
What is this?
A bulletin issued by the government on Wednesday said that the Official Digital Currency Bill, 2021 on Cryptocurrency and Regulation will be introduced in the winter session. The stated objective of the bill is “to create a facilitating framework for the creation of an official digital currency to be issued by the Reserve Bank of India.” In this direction, the bill seeks to “ban all private cryptocurrencies in India”, except for a few “to promote cryptocurrency and the technology underlying its use”.
The “official digital currency” here refers to a central bank digital currency that is expected to be issued by the RBI. Several central banks around the world are working on issuing their own digital currency. Some say it is meant to offer an alternative to private cryptocurrencies. It should be noted that the RBI in an order in 2018 prohibited financial institutions from facilitating cryptocurrency transactions. The RBI order was overturned by the Supreme Court last year, saying there was no legal basis for the ban. But the new cryptocurrency bill could provide a legal basis for a stronger ban.
Is this the end of the road for cryptocurrencies?
The bulletin issued by the government has created some confusion over what is meant as a “private cryptocurrency” in the context of the bill. Since, at least according to the Bulletin, the primary purpose of the bill appears to be to facilitate the creation of an official digital currency issued by the RBI, “private cryptocurrency” in this context probably refers to digital currencies created by other entities. State. However, others have argued that “private cryptocurrencies” refers only to a small number of cryptocurrencies that do not make their transaction ledgers and other data available to the public.
However, what appears to be clear so far is that cryptocurrencies will not be allowed to function as a full-fledged medium of exchange. Therefore, it would be illegal to buy goods and services using any cryptocurrency. People may only be able to speculate about the price of cryptocurrencies. This was expected given the risk that private currencies could compete with fiat currencies issued by central banks. Fiat currencies are seen as assets that governments can easily debate.
Crypto-enthusiasts point out that the banning of cryptocurrencies in other countries has not hindered crypto trading. They say that it is difficult for the authorities to crack down on cryptocurrencies and further argue that a blanket ban on cryptocurrencies will only push cryptocurrencies into the black market.
However, central bankers may not be concerned about such underground trading as long as the value and volume of these transactions are limited and there is no serious threat to their monetary powers.
What does this mean for the value of cryptocurrencies?
Cryptocurrencies were initially touted as a number of alternative currencies that could compete against fiat currencies such as the US dollar and rupee. But governments and their central banks are not ready to accept these private currencies as legal forms of money. This, some argue, is because citizens’ switch to private currencies could hinder the state’s ability to make money out of thin air. As the Center may now ban cryptocurrencies as a medium of exchange, the true fundamental value of cryptocurrencies as a currency may be in question.
However, crypto enthusiasts still argue that cryptocurrencies can serve as an asset like gold or silver that helps people protect their wealth from inflation. But it should be noted that assets such as gold and silver are only able to act as hedges because they have fundamental value either as a medium of exchange or as a useful commodity in the first place. This is what allows their price to rise in tandem with the fiat money supply.
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