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After Government-led Ban, What Will Happen to Cryptocurrencies in India?

While India’s tech sector supports cryptocurrencies, the Central Bank seeks to ban them altogether, making the future for the currency unknown

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When India’s Parliament announced on Wednesday, November 24 that cryptocurrencies could be banned, the crypto world was shocked. However, Subhash Garg, the former finance secretary — who drafted the 2019 cryptocurrency legislation — clarified that India is still a long way from banning them.

“To begin with I am not so sure whether Crypto Bill is expected any day. The bill has still not been formulated,” said Garg, who says he is doubtful whether the bill will even be introduced in Parliament.

In India, cryptocurrencies are a controversial figure, despite representing for the blockchain world the second fastest-growing market globally. News reports abound in Indian weekly newspapers about multi-billion dollar scams, money laundering and tax evasion.

Today, India is the country with the largest number of cryptocurrency holders, with almost 20 million people transacting in cryptos. Cryptocurrencies are certainly not lacking in followers. Many of them are in the Indian technology sector: guilds such as the National Software Association (NASSCOM), the Internet and Mobile Association (IAMAI) and IndiaTech look favorably on the technology. However, some commercial banks oppose its adoption and even send mails to their customers warning them against using their accounts for transactions involving “digital currencies.”

India is in a legal vacuum vis-à-vis cryptocurrencies, with commercial banks relying on the Reserve Bank of India’s (RBl) 2018 guidance to ban transactions in cryptocurrencies while the Supreme Court declared the guidance inappropriate citing proportionality issues.

The RBI’s stance on cryptocurrencies is that it is a speculative asset and could cause bubbles, so the only authority that should be able to issue digital currencies is the Central Bank.

Modi Government in meetings to define the future of cryptocurrencies in India

The Government of Narendra Modi has yet to clarify its stance on cryptocurrencies. In July 2019, a meeting was held with RBI officials along with the Securities and Exchange Commission (SEBI) where it was suggested that all cryptocurrencies — except those issued by the state — be banned in India.

India
India represents a market of more than $78 million invested in cryptocurrencies with more than 15 million active users. (Image: EFE)

But, much has changed since then, as after the cryptocurrency boom in 2020, digital currencies represent a market of over $78 million for India and are backed by major players from the private sector as well as the technology sector. This fact moved the government from being completely closed-minded about the possibility of introducing digital currencies in the country to considering them.

In early November, Modi convened a new meeting between the Finance Ministry, RBI authorities and SEBI, to re-establish a regulatory framework for cryptocurrencies that will be “proactive, progressive and forward-looking.”

The new legislation will also work on the inclusion of a Digital Currency backed by RBI, as it already has a project to launch its own digital currency: the CBDC, with which it seeks to take over the existing digital currency market in the country.

According to the Indian newspaper The Economic Times, the Government’s goal will be to replace the current cryptocurrencies with its own digital currency. In addition, a source consulted by the same media and who has been present during the negotiations said that “the Reserve Bank maintains its stance and will try to ban all cryptocurrencies.” However, once the CDDC starts circulating there will be an open window to regulate private stablecoins.

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