The Internet and Mobile Association of India (IAMAI) has questioned the government’s decision to ban crypto-currency trading and investing in India prior to introducing a digital currency, as both fiat currencies and crypto-assets can co-exist, it said in a press release. The industry body believes that a regulated digital currency would act as fiat currency while the benefits of blockchain and crypto firms can lead to innovation and wealth creation in the country.
Over two weeks ago, the government announced that it would introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will ban “private” crypto-currencies while at the same time providing the RBI with the requisite legal powers to develop a central bank-backed digital currency (CBDC), according to an official Lok Sabha Bulletin Part II for the Budget Session 2021 of Parliament. While the government wants to promote the use of blockchain across various use-cases, it has decided to enter the global race of creating a Central Bank Digital Currency (CBDC) while at the same time banning “private” crypto-currencies. This is similar to the model pursued in China.
“However, the association would also like to point out that in a section of the media and non-expert circles, it has been indicated that the introduction of fiat digital currencies is preconditioned on “banning” other crypto assets. IAMAI would humbly question this artificial co-relation on grounds that fiat currency serves a totally different purpose than the other crypto currencies in India and both of them can co-exist. In fact, existence and use of crypto assets by Indian consumers opens up a wide scope for Indian entrepreneurs to issue such currencies. and it is likely that Indians who comprise 15% of the global buyers will prefer an Indian crypto asset,” IAMAI statement
As part of proposed legislation, the government plans to give existing investors a window of three to six months to square their holdings. If the proposed law bans n all ‘private’ crypto-currencies it will impact crypto investors, exchanges and any firm dealing with cryptos. According to a few Indian crypto-entreprenurs, the move to create a CBDC or a Digital Rupee could be the first step towards bringing regulations for crypto-exchanges and firms in the country over the medium term. They believe that regulators could use the Digital Rupee to monitor all trades in crypto-currencies, provided that crypto-exchanges are given access to the same, MediaNama reported last week.
The proposed bill is yet to receive cabinet approval.
The IAMAI said that a digital currency issued by the government would ensure that all transactions and its circulation is recorded. “Such currencies can significantly reduce transactions cost by reducing the price of acquiring or sharing information securely. The safety standards and monitoring of such transactions can be ensured through inalterable public ledger systems developed and managed through the emerging blockchain technology,” it said. Recently, the IT Ministry published a National Strategy for Blockchain, encouraging regulations and private sector participation towards creating a wide-spread industry. The strategy emphasised on the need to introduce blockchain across multiple public digital projects encompassing identity, land, healthcare trade, supply-chain, insurance and others.
It is important to note that the IAMAI challenged the Reserve Bank of India’s April 16, 2018 circular in the Supreme Court. The central bank’s directive barred banks from dealing with crypto-currency investors and firms in the country. But the IAMAI’s legal challenge managed to overturn this restriction in March last year. “While we have recognized elsewhere in this order, the power of RBI to take a pre-emptive action, we are testing in this part of the order the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none,” the apex court had said in its order.
**(Update 5:23 pm February 16). Based on editorial direction, the lede and headline of the story have been edited to add emphasis on IAMAI’s reaction to the government’s decision to ban private crypto currencies prior to introducing a digital currency. Originally published February 16, 2021 3:47 pm as “IAMAI Welcomes Government Move To Create Digital Currency”.
MediaNama has prepared a guide on crypto-currency regulations in India, listing the government’s position over the last few years and various policy recommendations; read it here: A complete low-down on crypto-currency regulation in India.