SUMMARY
All cryptocurrencies except CBDCs are private crypto, an RBI official has told Inc42
Use cases may include leveraging crypto stack to unlock liquidity pools for MSMEs, says a source close to the development
NFT and DeFi may be allowed, but there is no confirmation regarding crypto trading, according to sources
Is the Indian government planning a blanket ban on crypto? What are the private cryptocurrencies set to bear the brunt of stringent regulation? Will tokens become assets now instead of emerging as the digital counterparts of fiat money?
All these questions and more continue to plague all stakeholders — crypto businesses, serious investors or even curious onlookers — since the government listed the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, for the Winter Session of Parliament.
Understandably, there are few definitive answers but speculation is rife, giving rise to unease and panic in many cases. So, Inc42 spoke to multiple sources in the government, the RBI and SEBI to gauge what’s cooking at the regulatory level.
Based on these insights, we tried to decode how the controversial Crypto Bill could impact the crypto industry in India.
The Crypto Bill: What We Know So Far
On November 23, the Lok Sabha bulletin (a routine affair of Parliament) published a list of 26 Bills that the Indian government plans to introduce, debate and pass during the Winter Session starting from November 29.
According to the description, the Bill will “create 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.”
This begs the question, what are private cryptocurrencies?
A Look At The ‘P’ Factor In Crypto
“All cryptocurrencies except the CBDCs (central bank digital currencies) are private cryptocurrencies,” an RBI official told Inc42.
Most of the crypto business founders have expressed their disbelief at this broad clarification. Many wonder whether cryptos like bitcoin and ethereum can ever be classified as ‘private’ (privacy coins, in industry parlance) as their transactions happen on public blockchains.
Speaking to Inc42, several founders have agreed that tokens like Monero, ZCash and many other crypto tokens can be termed private crypto as they either anonymise user ID/transaction or are listed only on a couple of exchanges.
However, the Indian government has classified all cryptocurrencies as private as these are not fiat money validated and owned by the government. In fact, this categorisation and definition have come from the RBI.
This is not difficult to understand, given the speeches and interviews of the RBI governor Shaktikanta Das and his deputy, T Rabi Shankar.
When asked about cryptocurrencies in August this year, Das told CNBC Asia, “You’re referring to private crypto. At (the) RBI, we have major concerns around private crypto from the point of view of financial stability. There are huge amounts of risks that impact financial stability, and we have shared our concerns with the government. So, the government will take the necessary policy decision in that regard.”
T Rabi Shankar, Deputy Governor of the central bank, said that private virtual currencies sit at substantial odds with the historical concept of money. They are not commodities or have claims on commodities as they have no intrinsic value. Some claims that they are akin to gold clearly seem opportunistic. Usually (all of them), and certainly the most popular ones now do not represent any person’s debt or liabilities. There is no ISSUER. They are not money (certainly not CURRENCY) as the word has come to be understood historically.
But many of the crypto exchange founders do not agree with this concept of crypto prevalent in India. “Bitcoin is a legal tender now in El Salvador. How can we say it’s private crypto,” asked a founder who did not want to be named.
The Crypto Ban: Partial Or All-Encompassing?
As the description suggests, there may not be a blanket ban on crypto. But it also states in no uncertain terms that there will be a ban on all private cryptocurrencies barring certain exceptions to promote the underlying technology of cryptocurrency and its uses.
These exceptions clearly indicate promoting blockchain technology and some of its use cases. This is another tricky part for Indian crypto investors as the government has not officially clarified things further.
Incidentally, this line has been taken from this year’s Budget Session bulletin. It was the first time when the government planned to introduce the Bill in Parliament but did not carry it out. Since then, a slew of developments rocked the crypto space and brought it to mainstream limelight.
“This [iteration] once again comes from the government’s understanding that cryptocurrencies are not legal tender and hence, cannot be an instrument for payments or related transactions,” said a finance ministry official on the condition of anonymity.
In fact, the government and the central bank (the money regulator) have never been at ease with cryptocurrencies. So, even if there is a small window of opportunity, neither will allow payment use cases, the official added.
Still, it cannot be a blanket ban as apprehended by many. In one of her interviews, finance minister Nirmala Sitharaman said, “We have to be sure that a futuristic thing [crypto] isn’t be shut out.”
The Window And The Use Cases That May Get The Nod
As policy decisions are made at the highest level, Inc42 has not been able to confirm the development on the cards, especially as two different government sources hold contradictory views.
One of them told us all future endeavours would be limited to fintech-based use cases such as crypto stack. And, the same could be monitored and governed by the International Finance Services Centre (IFSC), located in the country’s only GIFT city (Gujarat International Finance Tec-city) in Gandhinagar.
India has always faced a huge liquidity crunch when it comes to MSME funding, and the aim is to use crypto for a DAP (Digital Asset Pool) Fund that will help utilise the locked liquidity pool for borrowers.
We have covered this part of crypto functionality in detail here. This may also allow related use cases such as NFT and DeFi.
The other view says the bill promotes purely blockchain-based applications and a framework for the creation of CBDC. However, it will not allow NFTs, and crypto trading.
There is no confirmation yet whether crypto trading will be allowed. According to sources, much has been left for the executive orders and explanations that regulatory bodies will define and regulate. But one thing seems certain. Initially intended to be introduced in next year’s Budget Session, the Bill has been fast-tracked to stop the huge inflow of money into cryptocurrencies that may leave traditional and less lucrative investment instruments high and dry.
