The bill has proposed a complete ban on private cryptocurrencies and deals with an official digital currency
The main concern is around crypto being used as currency, while startups are looking to promote it as an asset, say founders
The RBI is likely to wait and watch the launch of other developments around the world before taking the decision on India's fiat cryptocurrency
As the budget session of the parliament commenced with the President Ram Nath Kovind addressing the joint sitting of the two houses on January 29, the government has also published a list of 20 new bills to be introduced in the parliament, including the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
Based on the draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019, the bill aims to provide a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
The bill, entitled, “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019,” was drafted by an inter-ministerial committee headed by former Department of Economic Affairs (DEA) secretary Subhash Chandra Garg.
Banning Of Private Cryptocurrencies Puts Startups On Red Alert
The entire Draft Bill can be divided into two parts:
Banning private cryptocurrencies
Paving way for official digital currency
The Interministerial Group which has drafted the Bill has proposed a complete an on private cryptocurrencies in India citing the risks associated with them and volatility in their prices.
The news has arrived after the Indian crypto industry saw an exponential rise in funding with global investors pouring money into Indian startups. While newly launched Sequoia-backed CoinSwitch Kuber raised $15 Mn led by Ribbit Capital and Paradigm, CoinDCX raised around $19 Mn led by Polychain Capital and Block.One in Series A and B rounds of funding.
Commenting on the announcement of the bill being tabled this Session, WazirX CEO Nischal Shetty said that it’s a good thing that the government has shown intent for a central bank digital currency and wants to initiate laws to make it easy for RBI to create its own CBDC.
“The concern is around the last statement in the description which says they want to ban all private cryptocurrency with some exceptions. I believe here the government’s concern is around the usage of crypto as a currency. As an industry, we’re in sync with crypto not being a currency but an asset/utility which people buy and sell,” Shetty told Inc42.
Barring few use-cases such as for study/research purposes, the draft bill 2019 proposed a huge penalty for any who directly or indirectly mines, generates, holds, sells, deals in, transfers, disposes of, or issues cryptocurrency. Under Section 7 of the bill, this will be punishable with fine or with imprisonment which shall not be less than one year but which may extend up to ten years, or both.
Sumit Gupta, founder and CEO of CoinDCX and Shivam Thakral, cofounder and CEO of BuyUcoin and other crypto founders have suggested that the government must take the opinion of the stakeholders while introducing enacting on such a Bill.
“We urge the government to take the opinion of all the stakeholders before taking a decision which may affect the livelihood of the entire workforce employed in digital asset industry in India,” Thakral said.
Vijay Pal Dalmia, partner, Vaish Associates and the Supreme Court lawyer who was among the firsts to file a PIL demanding a complete ban on cryptocurrencies in India, welcomed the move and said, “Though this should have been introduced much earlier, it is completely in sync with the concerns I had raised in my PIL.”
Will The Bill Pave The Way For Fiat Cryptocurrency?
The RBI has been mulling to introduce a fiat cryptocurrency since 2017. An RBI official earlier told Inc42 that the plan didn’t see much groundwork in late 2018 and 2019 as Bitcoin continued to dip in and many of the countries such as Russia and China who were working on fiat-crypto projects too didn’t launch their official cryptocurrencies as expected.
Will India take lead in launching its own fiat cryptocurrency?
The officer on the condition of anonymity said,
“Not right now. We have planned to adopt wait and watch policy instead of going ahead with the project. While the project might be executed in pilot mode, there is no plan to launch it fully ahead of other major countries.”
While China and Russia have been actively working on the project and are expected to launch their fiat cryptocurrencies soon, countries like Venezuela which launched their fiat cryptocurrency called Petro didn’t succeed and has been banned by most of the countries.
The Road Ahead
The bill once introduced in the parliament is expected to be referred to the standing committee or a joint parliamentary committee. And, this could be the last opportunity for cryptocurrency startups and investors to raise their concerns with these lawmakers.
“I also believe that this bill, if presented in Parliament will be referred to a standing committee so that they hold discussions with the crypto industry of India before moving ahead with regulations for this sector,” added WazirX’s Shetty.
CoinDCX’s Gupta said, “We are talking to other stakeholders and will definitely initiate deeper dialogue with the government and showcase how we can actually create a healthy ecosystem in unison.”
While the draft has proposed a ban on cryptocurrencies, the startup founders have questioned the move and the government’s capacity whether it can really ban cryptocurrencies which are traded internationally.
Kumar Gaurav, founder and CEO of Cashaa said that there cannot be a true ban on crypto anyway.
“Understanding that cryptocurrency is a global and decentralized system, there is no way any government can ban it. That would require that kind of technology and control, which technically does not rest with anyone. They can certainly ban the legitimate use of crypto which will only make it difficult for a common person who does not understand it to get involved in it.” Gaurav said.