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Proposed Ban On Cryptocurrency In India: An Analysis Of 'Banning Of Cryptocurrency & Regulation Of Official Digital Currency Bill, 2019

Vikash Kumar Bairagi
28 July 2019 5:01 AM GMT
Proposed Ban On Cryptocurrency In India: An Analysis Of Banning Of Cryptocurrency & Regulation Of Official Digital Currency Bill, 2019
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Much awaited report of the Inter-ministerial Committee constituted under the Chairmanship of Shubash Chandra Garg (Secretary, Department of Economic Affairs) to study the issues related to Virtual Currency and propose specification recommends that all Private crypto-currency, except any cryptocurrency issued by the state government, be banned in India because of volatility in their price and there is no underlying intrinsic value of it. In addition to the ban, fines upto Rs. 25 Crore and the imprisonment of 10 years for carrying any activities connected with cryptocurrencies in India. While crypto community criticised the report that it's a regressive step and closing doors for innovation.

No Crypto but Digital Currency for India-

In the third chapter of the report committed projected the idea of Central Bank Digital Currency (CBDC) that shall be the "Digital Rupee" to be the sole cryptocurrency in India having the following key attributes as a) It is issued by the Central Bank. b) It is a third variant in addition to cash and reserve money and c) It could serve as a competitor to cash and bank account money. CBDC shall allow anonymity, full availability and for transfer various taxonomies such as peer to peer transfer, account-based, Value-based.

In a research paper by George and Sarah elaborately explained the CBDC framework. The central bank will have complete control over the money supply, while the maintenance of the transaction ledger will be done through mintettes. The mintettes are analogous to miners, however, instead of performing a computationally difficult task to validate transactions, they will be authorised to collect transaction and collate in into blocks. The authorisation will be provided by the central bank through a public-key.

An analysis of the proposed Bill "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019" (hereinafter referred to as "Bill")

As the title of the Bill suggest it is divided into two major parts, First Prohibition of Cryptocurrency and Second, Regulation of Official Digital Currency

Prohibition of Cryptocurrency-

The Bill defines Cryptocurrency
[1] as by whatever name called, means 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 exchanged 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 definition includes all the prominent crypto-currencies i.e.- Bitcoin, Litecoin, Etrereum, Zcash, Ripple, Moneo, Cardano and other 2116 private Crypto-currencies. It proscribes that whoever directly or indirectly mines, generates, holds, sells, deals in, transfers, disposes of or issues cryptocurrency shall 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.
[2] While Bill shall allow using of technology or processes underlying any Cryptocurrency for the purpose of experiment or research, including imparting of instructions to pupils provided that no cryptocurrency shall be used for making or receiving payment in such activity.[3]

Regulation of Digital Currency

This part not only regulates Indian Digital Currency that shall be legal tender but also recognises and regulates the official Foreign Digital Currency as a Foreign Currency as per the regulation notified by Reserve Bank under the relevant provisions of the Foreign Exchange Management Act, 1999 and. 
[4]

This Bill is against the spirit of the recent G20 Finance Minister's Meeting where India at the meeting had shown consensus with the rest of the countries to regulate crypto-assets and apply the recently amended Financial Action Task Force Standards to Virtual Currencies and related providers for anti-money laundering and countering the financing of terrorism. It shall also affect the present bitcoin holders that are around 3 millions in India. If the bill become the act after parliamentary scrutiny it shall be an offence to hold, sell or transfer of cryptocurrency therefore some relaxation should be given to existing holder of private currency to convert into legal tender money .

Conclusion

The author is of the view that committee report maintains a balanced approach by supporting innovation through Distributive Ledger Technology aka Blockchain Technology and recommends its widespread use in delivering financial services simultaneously ban "Private currency" that may severely affect the economy. Unfortunately, this approach is not seen in any jurisdiction yet. However this is not the goal post of a long marathon, still, the Bill shall be examined by all the concerned department and Regulatory Authorities, Before Government takes a final decision and give a statutory mandate to it.

Vikash Kumar Bairagi, Student National University of Study and Research in Law, Ranchi


[1] Section 2(1) (A) of the Bill

[2] Section 8(1) of the Bill

[3] Section 3(2) of the Bill

[4] Section 5 of the Bill

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