DAILY NEWS ANALYSIS

GS-III : Economic Issues Digital currency

12 February, 2021
5 Min Read

Cryptocurrency

Cryptocurrency

Context

The government intends to bring in a law on cryptocurrencies to put an end to the existing ambiguity over the legality of these currencies in India.
The government has, suggested that it does not consider them to be legal tender.

What is Bitcoin?

Bitcoin is a type of digital currency that enables instant payments to anyone.
Bitcoin was introduced in 2009.
Bitcoin is based on an open-source protocol and is not issued by any central authority.
Bitcoin is a peer-to-peer currency.
Bitcoin is the first decentralised digital currency.

Disadvantages

Such currencies are:
- highly volatile,
- used for illicit Internet transactions, and
- wholly outside the ambit of the state — into any sort of regulation.

RBIs direction

In 2018, the RBI did send a circular to banks directing them not to provide services for those trading in cryptocurrencies.
Regulatory bodies like RBI and Sebi etc also don’t have a legal framework to directly regulate cryptocurrencies as they are neither currencies nor assets or securities or commodities issued by an identifiable user.

Supreme Court’s judgement

But this was eventually set aside by the Supreme Court, which found the circular to be “disproportionate,” given that the central bank had consistently maintained that virtual currencies were not banned in India.
Also, the RBI could not show that entities that it regulated were adversely impacted by exchanges dealing in virtual currencies.

So, what will the Bill seek to do?

Cryptocurrency exchanges, which have sprung up, are reportedly lobbying with the government to make sure these currencies are regulated rather than banned outright.
Smart regulation is preferable, as a ban on something that is based on a technology of distributed ledger cannot be implemented for all practical purposes.

Findings of India inter-ministerial committee

Even in China, where cryptocurrencies have been banned and the Internet is controlled, trading in cryptocurrencies has been low but not non-existent, as an India inter-ministerial committee found out.
Despite this and the fact that most countries it studied had opted for regulation, this committee still went ahead to recommend an outright ban.
Of course, it encouragingly also batted for an official digital currency as well as for the promotion of the underlying blockchain technology.

Conclusion

The government must resist the idea of a ban and push for smart regulation.

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Source: TH

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