Highlights:
- New draft of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 will be introduced to regulate cryptocurrency rather than a ban.
- The crypto stakeholders demanded regulation to prevent corrupt activities, and the bill is likely to be amended.
The world of money is shifting, with a strong push for private currency in the form of Cryptocurrency. The normal world is split into sovereign governments that oversee nation-state affairs and issue their own currencies for economic purposes. Cryptocurrency disrupts the traditional business and economic worlds, prompting several governments to consider how to regulate the emerging world of a potential parallel economy.
India’s government is one such government that is enacting laws to ensure cryptocurrencies, which is currently uncontrolled in the country despite significant investment in this type of currency.
A cryptocurrency is a type of digital currency. It is available using a technology known as block-chain. Bitcoin and Ethereum are two prominent cryptocurrencies. Their prices have dropped as a result of the government’s inclusion of a bill to regulate cryptocurrencies in India.
Cryptography, a complex software coding technique, secures cryptocurrency. The Cryptocurrency blockchain technology may be thought of as a distributed ledger that is recorded on a network of computers. Cryptocurrency transactions are recorded on different blockchain ledgers.
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This is a completely new world of currency, significantly different from the currencies known to the world’s commoners, who are still accustomed to digital transactions involving sovereign currencies. These digital transactions imply the movement of money without the physical exchange of currencies, which was the standard before the digital era.
But What Is The Problem?
A government intermediary is involved whenever a sovereign currency is used in a transaction. The bank acts as a mediator. There is no need for a middleman in the case of cryptocurrencies. The transaction can be performed between two entities directly.
This has the ability to take the economy out of the government’s control and deny it of taxes, resulting in an incredible quantity of black money, or money that goes untaxed and undiscovered. If left uncontrolled, this might represent a danger to the very existence or need for a government in the long term.
Cryptocurrencies are a kind of decentralised digital currencies that are not regulated by any sovereign banking authority. Though no official statistics are available, it is believed that cryptocurrencies in India hold over Rs 40,000 crore, or approximately $5.40 billion, with approximately 1.5-2 crore crypto investors.
According to Reuters, its worth is $10 billion, and it is completely outside of the government’s control. This appears to be the issue.
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What Is The Govt Doing Now?
The Narendra Modi government intends to introduce a bill in the forthcoming Winter Session of Parliament to criminalise all private cryptocurrencies and pave the path for the introduction of an official digital currency. It simply means the Reserve Bank of India (RBI) will create an Indian sovereign cryptocurrency.
The Cryptocurrency and Regulation of Official Digital Currency Act of 2021 would “provide a facilitative framework for the introduction of official digital currency.”
There is concern that the increased usage of cryptocurrency, if uncontrolled, might become the primary source of terror funding and hawala transactions. Recent events in the Afghanistan-Pakistan area have reinforced that fear. This might be another objective for the government in drafting cryptocurrency regulation.
Cryptocurrency in itself is not a bad thing for the economy because it enables the use of current technology to protect the usage of currency and its transactions. The RBI, on the other hand, has always been opposed to digital currencies, viewing them as a danger to the sovereign banking and currency system.
The RBI was concerned that cryptocurrency may be used to launder money. However, these opinions were articulated in the context of private cryptocurrencies. Cryptocurrencies are primarily intended to be anonymous. However, if the central bank has its own cryptocurrency, this problem might be solved.
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Not Opposed
The circulation of cryptocurrencies has resulted in the emergence of a new section of stakeholders, who express themselves through cryptocurrency exchanges. They are opposing a total ban on cryptocurrency. In reality, in March 2020, they petitioned the Supreme Court to overturn the RBI directive barring cryptocurrency trading, and the restriction was lifted.
What Next?
In some ways, the government’s law acknowledges the economic reality of cryptocurrencies. China has already taken this step by introducing a digital yuan and prohibiting the usage of any private cryptocurrencies in the country. By placing cryptocurrencies under the supervision and control of the RBI, the government hopes to avoid the formation of an anonymous parallel economy of illegal money.
