Intent On Ban, India To Give Transition Time To Crypto Investors — BQ Exclusive
India intends to model the regulatory regime for cryptocurrencies along the lines of China, said a senior government official.
India will go ahead with a complete ban on investment in cryptocurrencies, while providing existing investors a transition period to exit their holdings.
Cryptocurrency isn’t fiat currency backed by the Reserve Bank of India and its usage in all forms will be banned through the new law that will be introduced in Parliament, a senior Finance Ministry official said on condition of anonymity. This would include a ban on transacting directly via foreign exchanges.
The official, however, said the ban won’t be enforced overnight and cryptocurrency investors will be given a transition period of three-to-six months after the implementation of the new law to liquidate their investments.
The government has listed The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, for introduction in the ongoing Budget session of Parliament.
“To create a facilitative framework for creation of the official digital currency to be issued by the RBI,” the purpose of the Bill stated. “The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”
Since then, comments by the finance minister in parliament have suggested that a decision is still to be taken. Citing recommendations of a 2019 inter-ministerial group, Nirmala Sitharaman said the government would take a decision on the recommendations of the committee report and the legislative proposal, if any, would be introduced in parliament following due process.
The official cited earlier said India’s new law will be modelled on China’s regulatory regime, which has effectively banned on trading and usage of cryptocurrency, while the government is working on issuing its own virtual currency. China imposed a ban on initial coin offerings in 2017 and asked crypto exchanges to shut down. Since then, the Chinese central bank has also blocked all access to all domestic and foreign cryptocurrency exchanges and ICO websites.
While banning cryptocurrencies, the Indian government will allow the use of technology underlying the cryptocurrency for research or any other such purposes, the official said, adding the proposed law will be soon sent to the Union Cabinet for approval.
Waiting For Government Signal
Cryptocurrency trading platforms in India are anxious about the government’s impending decision.
“We’re all waiting for details (of the proposed law) to come out to determine our next course of action. If government goes ahead with banning all cryptocurrencies, except the one backed by the state, it will not make sense to continue our business in India,” Unocoin co-founder and chief executive officer Sathvik Vishwanath said. “But we’ll have to wait and watch.”
Vishwanath said cryptocurrency prices fell by 30% between Jan. 30 and Feb. 1, days after the government’s intent to ban private cryptocurrency was made public. However, Tesla’s announcement of buying Bitcoins has revived the market. “Investors do understand that the ban won’t be sudden and there will be some lead time given by the government so they’re not going for immediate selling as well,” Vishwanath said.
India doesn’t have a regulatory framework for cryptocurrency at present. In 2018, the RBI had effectively banned crypto transactions after a string of frauds in the months following Prime Minister Narendra Modi’s sudden decision to ban 80% of the nation’s currency. The RBI had issued an order asking all regulated entities, such as banks, to stop any dealings related to private cryptocurrencies.
Cryptocurrency exchanges responded with a lawsuit in the Supreme Court in September and won respite in March 2020.
The government had set up a committee in 2017 led by the then Economic Affairs Secretary Subhash Chandra Garg to study the issues related to virtual currencies. The committee, in its final report made public in 2019, had drafted a Bill to impose a complete ban on private cryptocurrencies after the regulators expressed their concerns over it.