Three months from now, a committee constituted by India’s Ministry of Finance is expected to submit its views on virtual currencies. The government of India has set up a committee, saying that the circulation of cryptocurrencies “has been a cause of concern”, to look into the following aspects:
(i) take stock of the present status of Virtual Currencies both in India and globally;
(ii) examine the existing global regulatory and legal structures governing Virtual Currencies;
(iii) suggest measures for dealing with such Virtual Currencies including issues relating to consumer protection, money laundering, etc; and
(iv) examine any other matter related to Virtual Currencies which may be relevant.
The committee is chaired by the Special Secretary (Economic Affairs) and will have representatives from Department of Economic Affairs, Department of Financial Services, Department of Revenue (CBDT), Ministry of Home Affairs, Ministry of Electronics and Information Technology, Reserve Bank of India, NITI Aayog and State Bank of India.
This follows a question in Parliament about the legality of bitcoin, following which Minister of State for Finance Arjun Ram Meghwal had said that the Reserve Bank of India “has not given any license/authorization to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency”, and more pertinently, that “any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.”
What happens next?
Bitcoin is in that space where it is neither legal nor illegal: it is unregulated. The absence of a regulation doesn’t make it illegal. Expect the involvement from and deposition of industry associations and the bitcoin exchanges; it’s unlikely to be a public consultation.
I’m expecting the Reserve Bank of India, Department of Revenue (CBDT), Department of Financial Services, State Bank of India and the Ministry of Home Affairs to be conservative about virtual currencies, and for Niti Aayog and Ministry of Electronics and Information Technology to be more liberal, given that the former would want to tread cautiously (since this is about money, taxes and government revenues), and be more security minded, while the latter would want India to take the lead in what it sees as the intersection of technology and finance. If you see this as a turf war between the Ministry of Finance and Ministry of Electronics and IT, you know who’ll want to protect their turf, and who’ll see this as an opportunity go grow theirs.
Once this committee rules on it, it will be up to the government to accept or reject its findings and choose how to regulate Bitcoin. Remember that the committee recommendations are not be binding on the government, and this will serve as a reference for the government’s own policy.
The Parliamentary Standing Committee in Bitcoin
Apart from this Ministry of Finance committee, there’s also a Parliamentary Standing Committee on Finance which is looking into Bitcoin. The RBI Governor Urjit Patel was supposed to have deposed before this committee end-March, according to this news report. We couldn’t find details of this committee on the poorly designed Parliamentary Standing Committee website. Note that the Parliamentary Standing Committee depositions are privileged (secret) until the committee releases its report. I’m still waiting for the report on Net Neutrality, which I had deposed before.
The RBI on Virtual Currencies
In 2013, the RBI had said that it would not regulate any Virtual Currency including Bitcoin in India and warned people who were dealing with the currency in India of the risks involved, saying that they’re exposing themselves to financial, legal, operational and security-related risk.
In 2017, it reiterated this stand, saying: “The Reserve Bank of India had cautioned the users, holders and traders of Virtual Currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to, vide its press release dated December 24, 2013.
The Reserve Bank of India advises that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.”