I. INTRODUCTION
With the exponential development of the financial and technology sector, the popularity of virtual currencies or cryptocurrencies has significantly increased in India and throughout the globe. As of March 2021, market experts estimate that the range of cryptocurrency holders in India varies from approximately 6 million to 10 million with their holdings in the form of cryptocurrencies amounting to a massive US$ 1.4 Billion. The overall growth in the financial technology industry in India spearheaded by cryptocurrencies has been evaluated to be approximately 121% from the period between 2018 to 2020, with the contribution of this sector estimated to eventually amount to approximately US $730 million of India’s GDP by 2025.
II. THE DRAFT BILLS
Despite such a significant impact by cryptocurrencies in India, their creation and usage has stirred controversy, caution and confusion. In 2017, the Government of India constituted an Inter-Ministerial Committee (‘IMC’) to propose an enactment for the regulation of cryptocurrencies. The IMC first proposed the Crypto-token Regulation Bill of 2018 which did not pursue a complete ban on cryptocurrency, rather sought its strict regulation. On the failure of the acceptance of this bill by the Government, the IMC subsequently introduced the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019, which sought for a complete ban on the usage of cryptocurrencies in India and proposed the creation of an official digital currency by the Government of India. However, even this bill failed to get the approval of the Parliament of India.
In 2021, the Government of India is finally all set to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 in the Parliament with the objective of facilitating a regulatory framework for the creation of an official digital currency to be issued by the RBI and seeking a blanket ban on all private cryptocurrencies in India. Interestingly, the draft bill also envisages certain exceptions to promote the development of technology relevant for the usage of cryptocurrency in India.
III. A GLOBAL PERSPECTIVE
Multiple jurisdictions have started treating cryptocurrencies with a forward-thinking approach. On a global level, the Financial Action Task Force (‘FATF’) has unveiled guidelines for the regulation of transactions in cryptocurrencies and opposed a blanket ban on their usage. Recently, China introduced the world’s first official state administered digital currency – ‘Digital Yuan’. The Judicial Courts of France have directed the usage of cryptocurrency as a fungible asset which can be lent as a commercial loan. The Central Bank of Germany has recognised and legalised cryptocurrencies and its service providers within the outlines of their regulatory regime. Japan has enacted a ‘Payment Services Act’ which defines cryptocurrencies and recognises business operators who are duly registered with the authorities to deal with cryptocurrency exchanges.
In the absence of the bills receiving legislative approval, the regulation of virtual currencies in India still lies in murky waters. The proposed blanket ban on all ‘private’ cryptocurrencies in its entirety by the draft bill shall inevitably impede the advent of digitalisation of the Indian economy. Although the creation of an official digital currency is highly appreciated, banning other cryptocurrencies rather than their regulation is not the best response. For context, Indian residents, based on recent estimates, contribute between two and ten percent of the US$ 430 Billion global cryptocurrency market, thereby, demonstrating serious inclination to deal within this market despite its obvious risks. Therefore, it is essential that the Government of India reviews its strategy on cryptocurrencies while taking into consideration the long-term economic perspective and the strong impetus that cryptocurrencies can provide to the Indian economy.
The professionals of D’Andrea and Partners Legal Counsel are continually monitoring trends in the Indian financial markets. If you have any questions, do get in touch at info@dandreapartners.com.
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