The proposed cryptocurrency legislation in India has been tabled before the Cabinet, the finance Minister has noted on Monday, according to reports. The approval of the Cabinet is being awaited, the minister added. Following the Cabinet nod, the Bill may come up for discussion in the next session of Parliament.
Earlier, a panel was constituted to examine all aspects of cryptocurrency in India and make recommendations. The panel was chaired by the Economic Affairs Secretary and comprised ministers. It has submitted its report and recommended that all private crypto be banned in India, barring any currency that has been issued by the state. Meanwhile, the Reserve Bank of India has also voiced its concerns on private cryptocurrencies.
Enter the concept of CBDC
However, experts cited in news reports believe that although there may not be an outright ban on cryptocurrencies, they won’t be made legal tender as well. Experts noted that crypto may be given the same treatment as an asset class that can be traded. The Cryptocurrency and Regulation of Official Digital Currency Bill 2021 was formulated in 2019 to ban private crypto and create regulations for the launch of a central bank digital currency that would be issued (CBDC) by the RBI. The bill, however is reportedly likely to make some exceptions so as to promote the technology underlying such currencies.
In July, the RBI deputy governor had noted that it was considering the introduction of a CBDC in phases. The CBDC is a legal tender that central banks offer, and is based on blockchain. A CBDC is different from a private cryptocurrency as it has sovereignty and is not volatile; private cryptocurrency on the other hand is exposed to volatility. The RBI deputy governor has also noted that the central bank will weigh the scope of the CBDC and assess whether it would be used in retail or wholesale payments. It would also assess other aspects such as the technology underlying the currency: distributed or centralised ledger. He had also noted that India’s digital payments were growing at a CAGR of 55 per cent over the last five years, and that the country was using a combination of cash and digital payments on the basis of the transaction value. The CBDC would provide one more option for the country.
Many countries are in various stages of exploring a CBDC. China has already launched trials of its digital yuan, for instance. According to an American think tank’s data, in 2020, a mere 35 nations were toying with the idea of a CBDC whereas in 2021, over 80 countries have considered the option.
In May 2021, the RBI had noted in a circular that banks would be allowed to facilitate cryptocurrency trades. It may be recalled that the central bank had issued a circular in 2018 that banned such trades by banks. Later, in 2020, the Supreme Court in its judgement, had lifted the ban on cryptocurrency transactions and permitted financial institutions and banks to provide crypto-related services.
Although there is no official data on crypto users and exchanges in India, cryptocurrency has grown in popularity, and the country reportedly has almost 15 million cryptocurrency investors. Also, crypto exchange data cited in news reports say that those who have invested in these currencies hold nearly Rs 15,000 crore.
Even as Cabinet approval for the proposed bill on cryptocurrency is expected, India’s central bank is keen on launching its own CBDC in phases. The government and the RBI seem to have taken note of the growing popularity of private cryptocurrencies but have concerns over the same, and therefore may see the need for a CBDC which comes with sovereignty.
Has the Cryptocurrency Bill 2021 been tabled in Parliament?
The Finance Ministry is awaiting approval from the Cabinet before the Bill can be tabled for discussion in Parliament.
Is there a ban on cryptocurrency in India right now?
There is no ban on private cryptocurrency right now and banks are allowed to facilitate trades pertaining to the same, as per an RBI circular in May 2021.
What is a CBDC and how is it different from private cryptocurrency?
A CBDC is a digital currency issued by a country’s central bank and represents the virtual version of a nation’s fiat currency. In India’s case, the CBDC would be a digital rupee.
Unlike private crypto, a CBDC is safer and not volatile.