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Rules and regulations around cryptocurrencies in India
The government's attitude on digital assets has shifted dramatically over the last several years, from an outright prohibition in 2016 to an impending Bill for crypto regulation 2021-22. The impending Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 differs from the previous one, which was titled "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019." While the previous legislation intended to outlaw all crypto-related acts such as purchasing, mining, selling, holding and trading, the new one will seek to distinguish between it and its commonly used classification as a currency.
There is currently no rule or prohibition in place in the nation regarding the usage of cryptocurrencies. The Supreme Court of India overturned the Reserve Bank of India's ruling prohibiting banks from enabling crypto transactions in March 2020. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is set to be introduced in Parliament during the Winter Session, and it aims to outlaw all "private cryptocurrencies" in India. It does, however, allow for certain exclusions in order to promote cryptocurrency's underlying technology and applications.
We look at the current state of crypto rules in India.
- 2013 to 2017
The Reserve Bank of India (RBI) released a circular in 2013 cautioning people against using virtual currencies. Users, holders, and dealers of virtual currencies have been cautioned by the bank about the financial, operational, legal, consumer protection, and security dangers they are taking. The central bank said that it has been closely monitoring developments in the realm of virtual currencies.
However, while banks continued to authorize transactions on cryptocurrency exchanges, the RBI issued another circular on February 1, 2017, expressing its worries about virtual currencies. By the end of 2017, the RBI and the finance ministry had issued a warning, stressing that virtual currencies are not legal money.
At the same time, two PILs were launched in the Supreme Court, one requesting that cryptocurrencies be banned from being bought and sold in India, and the other requesting that they be controlled. The government appointed a committee in November to investigate concerns surrounding virtual currencies and provide recommendations. There was no cryptocurrency restriction at the time, and most banks accepted transactions from bitcoin exchanges.
- 2018 to 2020
The Central Board of Digital Tax proposed a draft plan to the finance minister in March 2018 to prohibit the use of virtual currencies. The RBI then issued a circular prohibiting banks and financial institutions from providing financial services to virtual currency exchanges a month later.
Former RBI deputy governor BP Kanungo and former Central Board of Direct Taxes (CBDT) chairman Sushil Chandra have both advocated for a cryptocurrency prohibition. It generates "a dark money chain," according to Chandra. He also claimed that searches of virtual currency exchanges indicated that the majority of uneducated individuals in rural areas are being enticed to acquire it.
On April 6, 2018, the Reserve Bank of India issued a circular prohibiting commercial and cooperative banks, payments banks, small financing banks, NBFCs, and payment system providers from dealing in virtual currencies or giving services to any entity that deals with cryptocurrency exchanges.
Once the order was enacted, cryptocurrency values plummeted, exchanges halted, and withdrawals ceased. The finance ministry appointed-committee produced a draft law for virtual currency regulation in April 2018, but did not advocate a ban. The committee, however, produced a new draft measure in February 2019 that advocated a blanket prohibition.
Meanwhile, in March 2020, a huge change occurred. The Supreme Court of India has removed the RBI's restriction on cryptocurrency transactions, which prevented banks and financial institutions from providing banking services to anyone who transacted in crypto assets.
- 2021 (January to October)
"In its report, a high-level Inter-Ministerial Committee chaired by the Secretary to explore the concerns surrounding virtual currencies and advise specific steps to be done in the subject proposed that all private cryptocurrencies, save those issued by the government, be banned in India.," Finance Minister Nirmala Sitharaman said in the Rajya Sabha on February 9.
Anurag Thakur, Minister of State for Finance, also told Parliament that the government intended to introduce a bill on cryptocurrencies since the present crypto rules were judged insufficient to address the concerns surrounding cryptocurrencies. A senior government source told Reuters at the time that India might propose a legislation prohibiting cryptocurrencies, fining anybody trading in the nation or simply owning such digital assets, according to a report.
In an interview on March 5, only days after the study was published, Sitharaman said that she wanted to encourage crypto innovation. "We want to make sure there's a window open for all types of experimentation that will have to happen in the crypto world," she said in an interview. In November 2021, the Standing Committee on Finance, led by BJP member Jayant Sinha, met with officials from crypto exchanges, the Blockchain and Crypto Assets Council, and others, and concluded that cryptocurrencies should not be prohibited, but rather regulated.
Prime Minister Narendra Modi convened a meeting with key authorities on cryptocurrency earlier this month. Strong regulatory action is likely to be taken to address the problem, according to all indicators. Meanwhile, the Reserve Bank of India has reiterated its opposition to cryptocurrencies, claiming that they represent a severe danger to the country's macroeconomic and financial stability. It has also cast doubt on the number of cryptocurrency investors and their reported market worth.
RBI Governor Shaktikanta Das underlined his opposition to cryptocurrencies, stating that since they are uncontrolled by central banks, they represent a severe danger to any financial system. The RBI stated its intention to create an official digital currency in response to the rise of cryptocurrencies such as Bitcoin, which has raised several issues for the central bank.
- Session of Parliament
While addressing in the Rajya Sabha on Tuesday, Sitharaman described cryptocurrencies as a "risky domain." She said that they had yet to make a decision on cryptocurrency ads. The announcement comes only a day after she was reported in the Lok Sabha as stating there was no plan to recognise Bitcoin as a currency in India.
"This is a high-risk field that lacks a comprehensive regulatory structure." It was not decided whether or not its advertising should be prohibited. The RBI and SEBI are taking steps to raise awareness. During Rajya Sabha Question Hour, Sitharaman said, "The government would shortly bring a Bill." In a previous statement to the Lok Sabha, the Finance Minister said that the government does not collect data on Bitcoin transactions.
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