{"id":116454,"date":"2021-07-06T19:10:57","date_gmt":"2021-07-06T13:40:57","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=116454"},"modified":"2021-07-06T19:12:33","modified_gmt":"2021-07-06T13:42:33","slug":"cryptocurrencies-and-indian-regulations","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/cryptocurrencies-and-indian-regulations\/","title":{"rendered":"Cryptocurrencies and Indian regulations &#8211; Explained, pointwise"},"content":{"rendered":"\n<div class=\"content-box-blue\">\n<p><strong>Source<\/strong>: <a href=\"https:\/\/www.business-standard.com\/article\/opinion\/to-ban-or-not-to-ban-cryptocurrency-121070400743_1.html\" target=\"_blank\" rel=\"noopener\">Business Standard<\/a><\/p>\n<p><strong>Syllabus<\/strong>: GS Paper 3: Indian Economy and issues relating to Planning, Mobilization of Resources<\/p>\n<p><strong>Relevance<\/strong>: Cryptocurrencies have the potential to alter the Indian economy and challenge sovereign backing in India<\/p>\n<\/div>\n<h5><strong>Introduction<\/strong><\/h5>\n<p>Cryptocurrencies are registering a spectacular rise globally. In India also, despite RBI\u2019s strong reservations, investment in <a href=\"https:\/\/forumias.com\/blog\/answered-what-are-cryptocurrencies-discuss-various-concerns-related-to-cryptocurrencies\/\" target=\"_blank\" rel=\"noopener\">cryptocurrencies<\/a> by Indians has been growing. Blockchain data platform Chainalysis says crypto investments in India have grown some 200-fold in the past year, from about $200 million to nearly $40 billion. There are more than 15 million cryptocurrency traders in India \u2014 about two-third of the number in the US and more than six times that in the UK.<\/p>\n<h5><strong>What is Blockchain?<\/strong><\/h5>\n<p><a href=\"https:\/\/forumias.com\/blog\/blockchain-technology-4\/\" target=\"_blank\" rel=\"noopener\">Blockchain<\/a> is a system of recording information in a way that makes it difficult or impossible to change, hack or cheat the system. It is a digital ledger of transactions. Blockchain technology is the underlying technology for cryptocurrencies.<\/p>\n<h5><strong>Cryptocurrency regulations in India by RBI<\/strong><\/h5>\n<ul>\n<li>The RBI in its 2018 circular <strong>banned banks from dealing with virtual currencies and Bitcoins<\/strong> in any form. But the Supreme Court of India had set that circular aside.<\/li>\n<li>On May 31st, the RBI issued a release saying its April 2018 circular was no longer valid and that no bank should quote it to reject cryptos.\n<ul>\n<li>The May 31st release also said that the <strong>banks must carry out customer due diligence in line with regulations governing standards<\/strong>. Such as, know your customer (KYC), anti-money, combating of financing of terrorism and obligations of regulated entities under the Prevention of Money Laundering Act as well as the Foreign Exchange Management Act.<\/li>\n<li>These make it <strong>impossible for banks to deal with cryptocurrencies<\/strong> because of their very nature. (The persons who engage in cryptocurrency transactions are not known).<\/li>\n<\/ul>\n<\/li>\n<li>The RBI has issued at least three releases, including one in April 2018 cautioning both the regulated entities and the public against the \u201crisks\u201d associated with cryptocurrency.<\/li>\n<\/ul>\n<h5><strong>Government response to Cryptocurrencies<\/strong><\/h5>\n<ul>\n<li>A <strong>high-level inter-ministerial committee(<a href=\"https:\/\/forumias.com\/blog\/cryptocurrency-panel-for-ban-on-private-digital-currencies-jail-time-of-up-to-10-years\/\" target=\"_blank\" rel=\"noopener\">SC Garg Committee<\/a>)<\/strong> constituted under the chairmanship of the secretary (economic affairs) <strong>to study the issues related to virtual currencies<\/strong> and propose specific actions to be taken.<\/li>\n<li>\n<h6><strong style=\"font-family: var(--heading--font-family); font-size: var(--heading--font-size-h6); letter-spacing: var(--heading--letter-spacing-h6); background-color: var(--global--color-background); color: var(--global--color-primary);\">Recommendations of the <strong>SC Garg Committee<\/strong>:<\/strong><\/h6>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>The committee recommended that <strong>all private cryptocurrencies<\/strong> <strong>have to be prohibited in India,\u00a0<\/strong>except any virtual currencies issued by the state. Further, the panel recommend a jail term of one to 10 years for exchange or trading in digital currency.<\/li>\n<li>However, the committee is not against blockchain, the underlying technology for such currencies. The committee is in favour of <strong>exploring the enormous possibilities<\/strong> of blockchain for various purposes, <strong>including keeping land records<\/strong>.<\/li>\n<li>The committee has recommended <strong>a central bank\u2019s digital currency<\/strong>.<\/li>\n<\/ul>\n<\/li>\n<li>Apart from the committee, <strong>The Cryptocurrency and Regulation of Official Digital Currency Bill<\/strong> 2021 was to be introduced in Parliament\u2019s Budget session. But the government is still discussing it with the stakeholders. It is supposed to ban all private cryptocurrencies and prepare the ground for a CBDC in India.<\/li>\n<\/ul>\n<h5><strong>What is the central bank\u2019s digital currency<span style=\"font-family: var(--list--font-family); background-color: var(--global--color-background); color: var(--global--color-primary); font-size: var(--global--font-size-base);\">?<\/span><\/strong><\/h5>\n<p>It is a wallet or an electronic purse issued by the RBI. A <a href=\"https:\/\/forumias.com\/blog\/introducing-national-digital-currency-in-india-explained-pointwise\/\" target=\"_blank\" rel=\"noopener\">Central Bank\u00a0Digital Currency<\/a>\u00a0(CBDC), or\u00a0<b>national digital currency<\/b>, is simply the\u00a0digital\u00a0form of a country\u2019s fiat\u00a0currency. Instead of printing paper currency or minting coins, the central bank issues electronic tokens. This token value is backed by the full faith and credit of the government.<\/p>\n<p>Federal Reserve, Bank of England and even the European Central Bank are moving towards the so-called central bank digital currencies (CBDCs). On the other hand, China has already claimed success of its first pilot project of <a href=\"https:\/\/forumias.com\/blog\/china-tests-state-run-digital-currency-in-4-cities-amid-pandemic\/\" target=\"_blank\" rel=\"noopener\">digital yuan currency<\/a>.<\/p>\n<h5><strong>Why is India is against cryptocurrency?<\/strong><\/h5>\n<ul>\n<li><strong>Cryptocurrency can\u2019t be slotted<\/strong>: They are neither a commodity, nor a currency, nor part of the payments system. Simply put, cryptocurrencies such as <a href=\"https:\/\/forumias.com\/blog\/bitcoins-in-india-an-overview\/\" target=\"_blank\" rel=\"noopener\">Bitcoins<\/a>, \u00a0<a href=\"https:\/\/forumias.com\/blog\/what-is-dogecoin-cryptocurrency\/\">Dogecoin<\/a>, Ethereum, Litecoin, Cardano, Polkadot, Steller and many others, defy classification.\n<ul>\n<li>According to the RBI, a cryptocurrency cannot be classified as an asset since there is no future cash flow<\/li>\n<\/ul>\n<\/li>\n<li>The regulator doesn\u2019t consider this as a currency as it is not issued by the central bank and <strong>doesn\u2019t have sovereign backing<\/strong>. They also could <strong>jeopardise financial sector stability<\/strong> since there is no central monetary authority.<\/li>\n<li>Further, its <strong>value fluctuates because of speculation<\/strong>. It has poor storage value, and it\u2019s not widely accepted.<\/li>\n<li>It\u2019s also <strong>not part of the payments&#8217; system<\/strong>, like a credit or a debit card or internet banking.<\/li>\n<li><strong>Transactions are anonymous <\/strong>and <strong>transactions cannot be tracked<\/strong>. So, they are outside the ambit of public scrutiny. This has serious implications for KYC norms and is fraught with risks of money laundering and terror financing.<\/li>\n<li>Besides, there is <strong>no consumer protection<\/strong>. Once one misplaces the password, there cannot be any transaction as there is no central issuing authority for such currencies.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Source: Business Standard Syllabus: GS Paper 3: Indian Economy and issues relating to Planning, Mobilization of Resources Relevance: Cryptocurrencies have the potential to alter the Indian economy and challenge sovereign backing in India Introduction Cryptocurrencies are registering a spectacular rise globally. In India also, despite RBI\u2019s strong reservations, investment in cryptocurrencies by Indians has been&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/cryptocurrencies-and-indian-regulations\/\">Continue reading <span class=\"screen-reader-text\">Cryptocurrencies and Indian regulations &#8211; Explained, pointwise<\/span><\/a><\/p>\n","protected":false},"author":10311,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[130,9],"tags":[8362,2498,8251,8361],"class_list":["post-116454","post","type-post","status-publish","format-standard","hentry","category-7-pm","category-public","tag-cbdc","tag-cryptocurrency","tag-national-digital-currency","tag-sc-garg-committee","entry"],"jetpack_featured_media_url":"","views":{"total":2,"cached_at":"","cached_date":1700238365},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/116454","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10311"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=116454"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/116454\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=116454"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=116454"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=116454"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}