The Indian Government has listed a bill which prohibits the use of private cryptocurrency. It has decided to issue its own digital currency – a stablecoin backed by rupee and proposed to ban cryptocurrency.
The cryptocurrency ecosystem in India has always been a grey area with no regulations whatsoever. There is no clarity with regards to the possession, trading or dealing of cryptocurrencies till date. Rather than regulating, the Indian government is planning to ban cryptocurrency.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021
In the budget issue of the 17th Loksabha session, the Government has listed a bill which proposes a ban on all private cryptocurrencies. The bill also provides a provision for the creation of a legislative framework for the creation of CBDC.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 in the order of business said that certain exceptions to promote the underlying technology of cryptocurrency and its uses would be allowed.
The Reserve Bank of India has never been in favor of cryptocurrencies for obvious reasons. 2 years ago, it imposed a ban on trading of cryptocurrencies. It sent out circulars to all banks asking them to not provide services to exchanges and send out warnings to users dealing in cryptocurrencies.
This created a huge negative impact on the Indian crypto ecosystem and many exchanges had to shut down. However, this decision of the RBI was challenged in the Supreme Court of India and this ban was uplifted which led to a large increase in the number of investors in cryptocurrencies.
In the RBI booklet on payment systems, it said that it is researching on the implementation of a CBDC, which would be a digital version of Indian National Rupee.
What could be the implications of the bill?
The bill proposes the ban of “Private” cryptocurrencies without defining “Private”. Bitcoin and Ethereum are decentralized public blockchains. The ledgers are public and anyone can validate and run a node so till a clear indication of what “private” means, it is too early to interpret which cryptocurrencies’ ban has been proposed.
Moreover, DEFI and DEX can’t be stopped as they are not privately owned. The bill is not clear and many aspects of it could be challenged in the open court.
What are the next steps?
This bill has just been introduced and it could take few months for passing the note (provided it gets passed). A committee will be formed and they will have to provide recommendations and more clarity. These recommendations would go to the cabinet and must be passed in the lower and upper house. Once it gets passed, then it would become a law and this whole process will take a lot of time. Hence, for now, users will be able to trade digital assets.
After the law is passed, it can be openly challenged in the Supreme Court of India. Previous such bans like Beef Ban, Banking Ban by RBI for cryptocurrency exchanges were quashed by the Supreme Court of India.
The Indian crypto community is growing and they will actively fight in the Supreme Court if a ban gets imposed.
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