New cryptocurrency bill seeks to ban private players

News: The government has listed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 for the upcoming winter session of Parliament, starting November 29.

The bill is yet to be officially approved by the Cabinet.

This is among the 26 pieces of legislation, including the repeal of three farm laws, listed for the session.

About Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

As per the government notification on Lok Sabha website – The bill seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Through the cryptocurrency legislation, a facilitative framework will be created for an official Central Bank Digital Currency (CBDC). 

Further details of the bill are not out yet.

What are private cryptocurrencies?

Whatever cryptocurrency is not issued by the government, can be considered private, though there is no clear definition of private cryptocurrency.

According to some definitions,

– Bitcoin, Ethereum and many other crypto tokens are based on public blockchain networks, which mean transactions made using the networks are traceable while still providing a degree of anonymity to users.

– On the other hand, private cryptocurrencies could refer to Monero, Dash and others, which though built on public blockchains, hide the transaction information to offer privacy to users.

What is the way forward?

The need of the hour is to balance innovation and regulation.

As per D. Subbarao (former Governor of the Reserve Bank of India),

Internationally, regulatory responses to cryptos have fallen into three broad categories:

– Passive tolerance: It involves prohibiting regulated institutions from dealing in cryptos without explicitly clarifying their legal status. RBI tried this option but the Supreme Court struck it down.

– Total ban: A second approach is a total ban like in China. But that model entails the risk of pushing the trade into invisible and illegal channels, possibly inflicting even greater damage.

– Regulation: A third approach is to follow countries such as the UK, Singapore and Japan that have allowed space for cryptos to operate under a regulatory radar but without recognising them as legal tender. India will be well advised to follow this middle path.

Hence, the ideal way forward will be to ban Cryptocurrency use as legal tender while allowing it to be an asset.

Source: This post is based on the following articles:

‘New cryptocurrency bill seeks to ban private players‘ published in The Hindu on 23rd Nov 2021.

‘Bill to ban private cryptos this session‘ published in Business Standard on 23rd Nov 2021.

‘Crypto, not currency – Cryptocurrency: Ideal law will ban use as legal tender, allow it to be an asset‘ published in TOI on 23rd Nov 2021.

‘Govt plans Bills to bar pvt cryptocurrency with a few ‘exceptions’, repeal farm laws‘ published in The Indian Express on 24th Nov 2021.

‘Govt to move bill to ban all ‘private cryptocurrencies’ published in Livemint on 24th Nov 2021.