Marking a setback for cryptocurrency enthusiasts and start ups, India is set to ban private cryptocurrencies after an inter-ministerial committee (IMC) suggested outlawing private cryptocurrencies, like Bitcoin, apart from declaring any activities related to virtual currencies as a criminal act.
The report lays down that all private cryptocurrencies except the ones issue by the state be banned in India and endorses the stand taken by the RBI to eliminate the interface of institutions regulated by the central bank from cryptocurrencies.
The committee comprising of the Secretary (Economic Affairs) as the chairman, along with the Secretary, ministry of electronics and information technology, SEBI chairman and the deputy governor of the Reserve Bank of India while suggesting a crackdown on cryptocurrency has strongly batted for introduction of an official digital currency or ODC which can be provided the status of a legal tender regulated by the Reserve Bank of India.
The report by the committee was submitted to the govt on Monday along with a draft bill has been. The IMC report and the draft bill will be subject to review and scrutiny by the govt for a final decision in active collaboration with in concerned departments and regulatory authorities. The IMC A copy of the report and the draft bill for ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’ has been listed on the official Department of Economic Affairs website.
The report states that there are around 2,116 cryptocurrencies, Bitcoin like Rippld, Ethereum and Cardano with a market capitalisation of $119.46 billion.
Why IMC proposed Ban on Cryptocurrency
On private virtual currencies or crypto coins and tokens the report says, “As for private cryptocurrencies, given the risks associated with them and volatility in their prices, the Group has recommended banning of the cryptocurrencies in India and imposing fines and penalties for carrying on of any activities connected with cryptocurrencies in India,” The IMC has also proposed setting up a Standing Committee to revisit the cryptocurrency-related issues.
The IMC has chosen to specifically define the word cryptocurrency in the draft bill. Through this definition the committee has suggested separating cryptocurrency from digital rupee and digital foreign currencies. The definition lays down a clear stand against digital currencies which do not have the backing of Central Banks.
Cryptocurrency has been defined as “any information or code or number or token not being part of any official digital currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchange with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”
This is different from how cryptocurrency is define by the Australian Anti-Money Laundering and Counter-Terrorism Financing Act. There cryptocurrency is defined as a ” type of currency that only exists in digital rather than physical form (not coins or notes, for example) and can be exchanged for goods, services or physical currency and is not issued by or under the authority of a government.”
The Committee notes with serious concern mushrooming of cryptocurrencies almost invariably issued a.broad and numerous people in India investing in these cryptocurrencies. Its report lays down the following points to build a case against cryptocurrencies.
1) All the cryptocurrencies have been created by non- sovereigns and are in this sense entirely private enterprises.
2) There is no underlying intrinsic value of these cryptocurrencies back they lack all the attributes of a currency.
3) There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor they are a medium of exchange.
4) Since their inceptions, cryptocurrencies have demonstrated extreme fluctuations in their prices.
5) These crytocurrencies cannot serve the purpose of a currency. The private cryptocurrencies are inconsistent with the essential functions of mon- ey/currency, hence private cryptocurrencies cannot replace fiat currencies.
6) A review of global practices show that the have not been recognised as a LEGAL tender in any jurisdiction.
7) Committee also recommends that all exchanges, people, traders and other financial system participants should be prohibited from dealing with cryptocurrencies.
By creating this distinction the committee has created grounds in favour of distributed-ledger technology or (DLT) and its various applications in financial services in India. The report continues its positive disposition towards DLT-based systems the government statement on the report said, “It can be used by banks and other financial firms for processes such as loan-issuance tracking, collateral management, fraud detection and claims management in insurance, and reconciliation systems in the securities market,”
The IMC has kept its report in line with govt’s Digital India programme and focus on reducing use of paper currency by proposing that the government can look at an official digital currency.
The Government had constituted an Inter-Ministerial Committee (IMC) on 2.11.2017 , to study the issues related to virtual currencies and propose specific action to be taken in this matter. .
In the Report, the Group has highlighted the positive aspect of distributed-ledger technology (DLT) and suggested various applications, especially in financial services, for use of DLT in India. The DLT-based systems can be used by banks and other financial firms for processes such as loan-issuance tracking, collateral management, fraud detection and claims management in insurance, and reconciliation systems in the securities market.
As virtual currencies and its underlying technology are still evolving, the Group has proposed that the Government may establish a Standing Committee to revisit the issues addressed in the Report as and when required.