ANALYSIS OF INDIA’S PROPOSAL TO BAN TRADING IN CRYPTOCURRENCY

 What is CRYPTO CURRENCY?

 It’s nothing more than the colorful 100 and 500 rupee notes that we use in our daily lives. The only difference is that a cryptocurrency is a digital currency that uses digital files as money and its records are maintained by a decentralized system using cryptography, rather than by a Centralized authority. It uses an efficient technology popularly known as Block chain technology which preserves it from being distorted.

The tale goes back to the year 2018 when the Indian Central bank, the Reserve Bank of India issued a circular to bar the regulated entities from imparting services to any individual or business dealing in digital (crypto) currencies. The rationale for this major development was the unregulated nature of the crypto currency which was subject to scrutiny by many governments around the world. The sudden hike in the worth of the digital currency in the previous years lead to disconcertment that such currencies could assist money laundering and tax evasion. This move was considered to be a ‘demonetization’ on cryptocurrency by many investors.

Due to the rapid rise in the use of crypto currencies, many countries like China, which was once a global hub for such trading, made the crypto currency illegal and Japan as well as South Korea too instituted a number of regulations.

The guidelines did not mean that RBI gave up the idea of a virtual currency absolutely. Conforming to the steps taken by Central banks across the globe, the RBI too is pondering the introduction of a centrally governed digital currency. The idea of a self governed crypto currency was hinted by the then deputy Governor of RBI, BP Kanungo as he clearly said “These (crypto currency) are issued by the central bank and are considered the liability of the central bank. They will be in circulation in addition to the paper currency that we have. It also holds the promise of reducing the cost of printing notes.”

These events obstructed the ones who were dealing in cryptocurrency. But on 4^th March 2020, a decision by the apex court seated in New Delhi, which came as a temporary relief, in ‘Internet and Mobile Association of India v. RBI’, quashed the RBI’s circular. In this 180 page judgement, the court found that the prohibition imposed by the circular issued by RBI is disproportionate, and, therefore, ultra vires the constitution.

“According to the court, the RBI’s circular, in imposing a wholesale moratorium on the provision of banking services to these dealers, unreasonably impinged on what is otherwise a valid vocation, by going beyond the limitations permitted under Article 19(6).”

The court’s decision provided consolation to the dealers yet there is an absence of definitive regulation on the digital currency market. The non-existence of a regulative body makes it implausible for financial institutions and the banking sector to invest in digital currencies.

The win in court prompted an almost 450% surge in trading in just two months since March, according to TechSci Research, reviving concerns as more Indians risk savings amid job losses and an economic slowdown worsened by the coronavirus pandemic. Bitcoin marketplace Paxful reported 883% growth between January to May 2020 from around $2.2 million to $22.1 million. WazirX, a Mumbai based crypto exchanger grew 400% in March 2020 and 270% in April 2020 on month-on-month basis, according to TechSci.

The relief was short lived as the Central Government has proposed a bill named "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019", with the aim to ban all private cryptocurrencies. The bill is yet to be approved by the Indian Parliament, but it would enthralling to ponder the role of Cryptocurrencies in the post COVID-19 economy since it has the potential to enable social and economic growth throughout the world, including in developing countries, by offering easier access to capital and financial services.

Meanwhile countries like USA, Australia, UK, China, Germany as well as smaller countries like Estonia, Nigeria, Zimbabwe, have setup a regulation body to handle the trading of cryptocurrencies, it’s certainly surprising to discover that the Indian Government is thinking about banning cryptocurrencies. In fact, the Government is thinking to encourage the use of blockchain technology. NITI aayog, the Central Think Tank, is examining feasible uses of blockchains, which is basically a digital structure that stores public transactional records in different network databases, to manage drugs supply chains, land records or educational records. But its advantages cannot be maximized without using cryptocurrencies.

If the bill is approved then a renewed trading ban is surely going to affect more than 1.5 million Indians trading in digital currencies and companies like Singapore-based CoinSwitch, which reportedly gained more than 2 lakh users after the Supreme Court judgement.

To put on a complete ban on the crypto currencies is not benefiting for the Indian economy. With the boon of youth having capability of reaching great heights, the Indian government should study the regulative measures taken by other countries and draw up a regulative framework to ensure ample supervision of the government together with the RBI over Crypto currencies. The government can take inspirations from the regulatory laws set out by various governments around the globe like, the ‘Uniform Regulation of Virtual Currency Businesses Act’ (‘ULC Model Law’) legislated by the US government after considering the opinions of policymakers, public, non-profit organization and leaders of the digital industry.

For the time being, the government can encourage the training of all regulators and law enforcement agencies regarding the frauds and misappropriation in the handling of Cryptocurrencies, so that the consumers do not suffer.

At the end of the day, a country as great as India needs to be out there in the global battlefield marching towards becoming a superpower and to achieve this goal, it is up to our policymakers to develop the best possible course of action and realize India’s technological ambitions.

- Abhaas Mishra