India’s cryptocurrency sector awaits the introduction of new regulations. Speculation about the new rules has many investors on tenterhooks while the government plans legislation that could ban payments using cryptocurrencies of all kinds.
There is hope that the government will not go so far as a ban and it will leave room for cryptocurrencies to grow by bringing in some certainty. However, it is clear that the government has no plans to boost the cryptocurrency sector, since that’s what the Finance Ministry told the Parliament in a reply to a query in Lok Sabha last Monday. The Finance Ministry added that, since cryptocurrencies are unregulated in the country, the government does not collect data on the sector.
A Bill on Cryptocurrency and Regulation of Official Digital Currency is expected to be taken up during the seventh session of the seventeenth Lok Sabha and, in the bill, the government plans to ban all private cryptocurrencies, with some exceptions. It is seeking to build a framework for the adoption of a central bank digital currency (CBDC) as well.
In October 2021 the Indian government had received a proposal from the Reserve Bank of India (RBI) for the amendment to the Reserve Bank of India Act, 1934. The RBI sought to improve the reach of the definition of bank note to include cryptocurrencies and it has been examining the use cases and working out a phased implementation strategy for the introduction of CBDCs. Since the CBDC would be backed by the RBI, it will supposedly not have volatility associated with the private cryptocurrencies.
The Ministry was asked for details of the predictability of CBDC and utility in banking transactions and answered that the CBDC has “the potential to provide significant benefits, such as reduced dependency on cash, higher seigniorage due to lower transaction costs, and reduced settlement risk. It would also possibly lead to a more robust, efficient, trusted, regulated, and legal tender-based payments option.” Despite the potential benefits, it warned that there are associated risks, which need to be evaluated too.
