From an outright ban on cryptocurrencies in 2016 to an upcoming Bill for regulation—the government’s stance on digital assets has changed considerably over the past few years. The upcoming Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is different from the earlier one – ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.’
While the older law sought to impose a complete ban on all crypto-related activities including mining, buying, holding, selling, and dealing, the new one will look to make a clear distinction when it comes to its often used categorisation as a currency.
Currently, there is no regulation or any ban on the use of cryptocurrencies in the country. The Reserve Bank of India’s (RBI) order banning banks from supporting crypto transactions, was reversed by the Supreme Court order of March 2020.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is listed for introduction in Parliament’s Winter Session seeks to prohibit all “private cryptocurrencies” in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Here we examine the regulatory journey of cryptocurrency in India so far.
In 2013, the Reserve Bank of India (RBI) issued a circular warning the public against the use of virtual currencies. The bank warned users, holders, and traders of virtual currencies about the potential financial, operational, legal, customer protection, and security-related risks they are exposing themselves to.
The central bank pointed out that it has been keeping a close eye on developments in the virtual currency world, including Bitcoins, Litecoins, and other altcoins.
But as banks continued to allow transactions on cryptocurrency exchanges — on February 1, 2017, RBI released another circular, reiterating its concerns with virtual coins. And by the end of 2017, a warning was issued by RBI and the finance ministry clarifying that virtual currencies are not a legal tender.
At the same time, two Public Interest Litigations (PILs) were filed in the Supreme Court, one asking for a ban on buying and selling of cryptocurrencies in India, the other asking for them to be regulated. In November, the government formed a committee to study issues around virtual currencies and propose actions.
At this time, there was no ban on cryptocurrencies and most banks allowed transactions from cryptocurrency exchanges.
In March 2018, the Central Board of Digital Tax (CBDT) submitted a draft scheme to the finance ministry for banning virtual currencies. A month later, the RBI issued a circular that restrained banks and financial institutions from providing financial services to virtual currency exchanges.
Former RBI deputy governor BP Kanungo and then Central Board of Direct Taxes (CBDT) chairman Sushil Chandra voiced their opinions in favour of a ban on cryptocurrencies. Chandra said it creates “a chain of black money.” He also mentioned that searches conducted into exchanges dealing with virtual currencies had revealed that most uninformed people in interior places are being lured to buy it.
On April 6, 2018, RBI issues a circular asking commercial and co-operative banks, payments banks, small finance banks, NBFCs, and payment system providers from dealing in virtual currencies, or providing services to all entities which deal with crypto exchanges.
Cryptocurrency prices fell, exchanges froze, and withdrawals stopped once that order was passed.
In April 2018, the finance ministry appointed-committee proposed a draft bill for the regulation of virtual currencies but did not recommend a ban. However, in February 2019 the committee proposed a fresh draft bill that recommended a blanket ban.
Meanwhile, in March 2020 a significant development took place. The Supreme Court of India lifted the curb on cryptocurrency imposed by RBI, which restricted banks and financial institutions from providing access to banking services to those engaged in transactions in crypto assets.
“A high-level Inter-Ministerial Committee (IMC) constituted under the Chairmanship of Secretary (Economic Affairs) to study the issues related to virtual currencies and propose specific actions to be taken in the matter recommended in its report that all private cryptocurrencies, except any virtual currencies issued by the state, will be prohibited in India,” Finance Minister Sitharaman said in Rajya Sabha on February 9.
Minister of State for Finance Anurag Thakur also informed Parliament that the government planned to bring a Bill on cryptocurrencies as the existing laws were deemed inadequate to deal with the issues concerning cryptocurrencies.
Further, a report revealed that India could propose a law banning cryptocurrencies, fining anyone trading in the country or even holding such digital assets, a senior government official told Reuters at the time.
Days after the report surfaced, in an interview on March 5, Sitharaman said she wants to foster innovation in crypto. “We want to make sure that there is a window available for all kinds of experiments which will have to take place in the crypto world,” she said during an interview on CNBC TV18. “We are not closing our minds.”
Further, in November 2021, the Standing Committee on Finance, chaired by BJP member Jayant Sinha, met representatives of crypto exchanges, Blockchain and Crypto Assets Council (BACC), among others, and came to the conclusion that cryptocurrencies should not be banned, but regulated.
Earlier this month, Prime Minister Narendra Modi called a meeting on cryptocurrencies with senior officials. The indications are that strong regulatory steps will probably be taken to deal with the issue.
Meanwhile, the Reserve Bank of India has repeatedly underlined its strong view against cryptocurrencies, saying these pose a serious threat to the macroeconomic and financial stability of the country. It has also raised doubts on the number of investors trading on cryptocurrencies and their claimed market value.
RBI Governor Shaktikanta Das reiterated his opposition to cryptocurrencies, saying these pose a serious threat to any financial system since they are unregulated by central banks. The RBI announced its intent to come out with an official digital currency in the face of the proliferation of cryptocurrencies like Bitcoin, about which the central bank has had many concerns.
Sitharaman Tuesday termed cryptocurrency as a “risky area” while speaking in the Rajya Sabha. She said that they are yet to take a call on advertisements around cryptocurrency. The statement comes a day after she was quoted as saying in the Lok Sabha that there was no proposal to recognise Bitcoin as a currency in the country.
“This is a risky area and not in a complete regulatory framework. No decision was taken on banning its advertisements. Steps are taken to create awareness through RBI and SEBI. The government will soon introduce a Bill,” Sitharaman said during the Question Hour in Rajya Sabha.
The Finance Minister in her earlier reply to the Lok Sabha had also said that the government does not collect data on Bitcoin transactions.