Cryptocurrency and Regulation of Official Digital Currency Bill

 Cryptocurrency and Regulation of Official Digital Currency Bill

 

 

THE BILL'S MAIN PROVISIONS:

It aims to regulate bitcoin and, apparently, prohibit all private cryptocurrencies. It also aims to provide a structure that will make it easier for the Reserve Bank of India to launch an official digital currency.

 

THE CURRENT STATUS:

 

In India, an inter-ministerial commission on cryptocurrency has suggested that all private cryptocurrencies be banned, with the exception of state-issued virtual currencies.

The Reserve Bank of India (RBI) has also expressed concern about the cryptocurrencies that are traded in the market and has informed the government.

The Supreme Court authorised banks and financial institutions to resume services linked to cryptocurrencies in March 2020, overturning the RBI's 2018 circular prohibiting them (on the basis of "proportionality").

NEED FOR REGULATION 

Virtual coins are based on blockchain technology, which is highly secure. A wallet is linked to a private key rather than an individual person. Therefore, the Governments find it challenging to trace the origin of a transaction. Because Virtual coins use pseudonyms to carry out transactions, it has the potential of being used for illegal activities.

Another concern is that since Virtual coins are not backed by the Government or any commodity and therefore can lose their values if the promoter of the Virtual coins stops the trading activity.

BENEFITS ASSOCIATED WITH CRYPTOCURRENCY:

Fast and Low-Cost Transactions: Cryptocurrencies are far less expensive to use for international transactions since they don't have to go through a succession of intermediaries before reaching their final destination.

Cryptocurrency has a finite quantity, similar to gold, so it's a good place to put your money. Furthermore, the price of cryptocurrencies has risen faster than the price of other financial instruments in recent years.

As a result, cryptocurrency may become a popular investment option.

CONCERNS REGARDING CRYPTOCURRENCIES:

Advertisement Deluge: The crypto market is viewed as a method to make rapid money. As a result, there is a barrage of advertising, both online and offline, attempting to entice people to speculate in this market.

However, there are concerns that "over-promising" and "non-transparent advertising" are being used to deceive the youth.

Unregulated crypto marketplaces can be used for money laundering and terror financing, which is a counterproductive use of the technology.

The Price of Cryptocurrencies is Extremely Volatile: Bitcoin soared from USD 40,000 to USD 65,000, a new all-time high (between January to April 2021). Then, in May 2021, it plummeted, and it remained below USD 30,000 for the entire month of June.

Macroeconomic and Financial Stability: According to a group of crypto exchanges, approximately Rs 6,00,000 crore has been invested in crypto assets by Indians. The level of Indian retail investors' investment involvement in this unregulated asset class is a threat to macroeconomic and financial stability.

Issues with the Stock Market: The Securities and Exchange Board of India (SEBI) has stated that it has no authority over the "clearing and settlement" of crypto currencies and that it cannot provide counterparty guarantees as it does for stocks.

Furthermore, it is unclear if bitcoin is a currency, a commodity, or a security.

CONCLUSION

The proposed Bill may ideally serve to introduce a level of uniformity of understanding and serve to bring the various government agencies involved onto the same page while also providing security and helping regulate the otherwise unregulated markets and prevent its misuse.

However, on the surface the Bill seems to be very restrictive in nature as it seeks to ban all private cryptocurrencies including mining and trading therein. The Bill further seeks to promote the 'official digital currency' that is to be issued by the Central Government and the RBI