Cryptocurrency regulations in India.
1. What is cryptocurrency?
Cryptocurrencies are digital currencies that can be used to sell and purchase assets online. These are gaining ground in India. More than 1.5 crore Indian people have their investments in crypto assets. However, the government of India and RBI have always been worried regarding the damage that cryptocurrency may cause to the financial system as there exists no underlying asset based on which the value of cryptocurrency is determined. It depends on what Adam Hayes refers to as “The greater fools Theory” which means that people can sell overvalued assets as they find a “greater fool” to buy the asset. The value of cryptocurrency is also completely based upon human emotions.
There has been a lot of hearsay and confusion regarding the future of cryptocurrencies in India. Let us decode this information.
2. Is cryptocurrency illegal in India?
The answer is simply no, cryptocurrency is not illegal in India but it is also not recognized as legal tender by the Reserve Bank Of India (RBI), i.e. it cannot legally be used as a medium of exchange or for the settlement of a public or private debt. We can think of cryptocurrency as an asset like gold, commodities, real estate, etc. We invest in assets as they contain an economic value that might increase in the future and help us earn monetary gain. Cryptocurrency works on a completely decentralized network called blockchain due to which it cannot be controlled by any individual or an organization. Moreover, no laws are created to regulate the trade of cryptocurrencies in India, which is a matter of concern.
3. What is RBI’s outlook on cryptocurrency?
RBI is concerned that the highly volatile cryptocurrency can cause major financial trouble to the investors and the financial system.
RBI issued a circular on April 06, 2018, prohibiting commercial banks, small finance banks, payment banks, non-banking financial companies (NBFCs), and any other payment system provider from dealing in financial transactions related to cryptocurrency. However, this circular was challenged by the Internet and Mobile Association of India (IAMAI) and crypto exchanges. Finally, in March 2020 The Supreme Court Of India set aside the circular declaring that the circular was bad in law and illegal as it violated the fundamental rights of The Constitution Of India. Also, RBI failed to prove how it can damage the financial system.
On the positive side, considering the cost and time efficiency of digital currencies, RBI is in the pilot stage of launching its digital currency, Central Bank Digital Currency (CBDC) which will be less volatile than cryptocurrencies as its
underlying value will be based upon Indian Rupees i.e as 1 INR = 1 CBDC, and most importantly, it will hold the status of legal tender.
4. Is the Crypto bill to be passed by the Indian government?
The government is negotiating with the Reserve Bank Of India (RBI) concerning cryptocurrency policies as The Supreme Court Of India has strictly told the government to take a call on the matter. Hon’ble Finance Minister of India Mrs. Nirmala Sitharaman has declared that a very calibrated position will be taken on the matter as the world is progressing fast in terms of technology, the government cannot completely go this way or that way i.e. it cannot think inwardly and ban cryptocurrency rather it needs to plan pragmatic regulation of the cryptocurrency, which means a crypto bill shall be passed by the government which will regulate the currency but not bans it completely. However, Mrs. Nirmala Sitharaman also advised not to invest heavily in crypto.
5. Conclusion: What is the future of crypto in India?
The government of India is finally taking cryptocurrency seriously, as it is realising the worth of the technology behind it. Blockchain technology holds the power to disrupt the traditional finance system. The government understands the need for technological development and innovation and does not want to lag. It is also taking time to shape the crypto policy and thus avoiding taking any decision in hurry. Although it seems that cryptocurrency may have a future in India, one should not speculate heavily on such a volatile currency without considering the consequences.