India is looking to introduce a law to ban cryptocurrencies, as the government sees a legal framework as being more effective than a circular from the Reserve Bank of India (RBI) in this regard, says a report.Quoting a senior government official, a report from the Economic Times says , “A note has been moved (by the finance ministry) for inter-ministerial consultations.The spur for the draft cabinet note was the 4 March 2020 decision of the Supreme Court to quash the April 2018 circular from the RBI that prevented banks from providing services in support of cryptocurrencies.” According to the newspaper, in July 2019, a high-level government panel prepared a draft law providing for a ban on all forms of private cryptocurrencies.It had suggested a fine of up to Rs25 crore and imprisonment of up to 10 years for anyone dealing in them.Earlier in March this year, while allowing traders in cryptocurrency access to banking, the Supreme Court had cancelled a circular issued by the RBI in 2018 .In the 5 April 2018 circular, the central bank had barred all its regulated entities, including banks, from dealing in virtual currencies like bitcoins, following its earlier multiple warnings on their risks.A bench of justices Rohinton Nariman, Aniruddha Bose, and V Ramasubramanian held that the RBI’s circular, which prevented regulated entities from providing banking services to those engaged in the trading or facilitating the trading in virtual currencies (VCs), was liable to be set aside on the ground of proportionality.”When the consistent stand of RBI is that they have not banned VCs and when the government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate”, the apex court had stated.
Many banking regulators from across the world are not comfortable with the idea of cryptocurrencies.Indian government, especially the RBI always have expressed reservations to allow cryptocurrencies in the country.
In view of the risks and dangers associated with cryptocurrencies, the Indian government and RBI have been issuing advisories, press releases and circulars to the public.The RBI statement in April 2018 had said: “We have now decided to fence RBI-regulated entities from the risk of dealing with entities associated with virtual currencies.
They are required to stop having a business relationship with entities dealing with virtual currencies forthwith, and unwind the existing relationship within three months.Virtual currencies, also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others”.
This circular was challenged before the Supreme Court by Internet and Mobile Association of India (IAMAI) and few other stake holders.Greed and risk-taking behaviour go hand-in-hand; so, despite this emphatic warning, and at least three previous warnings by the RBI, once in 2013 and twice in 2017, there are thousands of people queuing up every day to register with crypto exchanges.
In 2017, the finance ministry set up a nine-member inter-disciplinary committee that included Niti Aayog to study the global situation and suggest measures for dealing with such currencies.The finance minister announced in November 2017, ‘The government’s position is clear, we don’t recognise this as legal currency as of now.’ Then, on 29 December 2017, the finance ministry issued a formal press release warning people about ‘virtual currencies’ (VCs).It said, “VCs are not backed by government fiat” and they are also not legal tender or even currencies, in the real sense, although they are called ‘coins’.VCs don’t have “any intrinsic value and are not backed by any kind of assets,” their prices are “entirely a matter of mere speculation” and that there is a “real and heightened risk of investment bubble of the type seen in Ponzi schemes,” says the release.Equating crypto-currency to Ponzi schemes, the ministry had warned people to avoid getting trapped by them and to note that digital currencies are often used to carry out subversive activities such as drug and terror funding.The finance ministry was also emphatic in stating that “VCs do not have any regulatory permission or protection in India” and people should deal with them at their own risk.This warning was issued after seeking public views on future of Bitcoins (in May 2017) on its portal MyGov.Like this story? Get our top stories by email.
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