The Cryptocurrency and Regulation of Official Digital Currency Bill 2021

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 “seeks to prohibit all private cryptocurrencies in India, but it provides for specific exceptions to encourage the underlying technology and its usage,” according to the bill. The law also aims to “provide a conducive framework for the development of the Reserve Bank of India’s official digital currency.”

SC Garg Committee, 2019

Subhash Chandra Garg, the finance secretary, chaired an Inter-Ministerial Committee on Virtual Currencies. The government received the committee’s report. The central government’s committee presented the ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’ as a proposed bill.

The committee advocated outlawing cryptocurrencies in its report titled “Report of the Committee to Propose Specific Actions in Relation to Virtual Currencies.” The committee had expressed concern over the proliferation of cryptocurrencies, almost all of which were produced outside of India, and the large number of Indians who were investing in them. “All of these cryptocurrencies were developed by non-sovereigns and are, in this sense, fully private firms,” the report stated emphatically. “There is no underlying intrinsic value of these private cryptocurrencies, as a result of which they lack all the features of a currency.”

Cryptocurrencies, according to the committee’s assessment, cannot serve as a currency since private cryptocurrencies are incompatible with the core functions of money/currency. The group also recommended that the government keep an open mind about establishing an official digital currency. It proposed that the Department of Economic Affairs form a working group, with representatives from the RBI, MeitY, and DFS, to examine and design an appropriate digital currency model for India.

The key features of the 2019 draft of the Bill are as follows:

• The Act seeks to ban mining, holding, selling, trade, issuance, disposal, or use of cryptocurrency in the country.
• The Bill allows the use of processes or technology underlying any cryptocurrency for experiment, research, or teaching.
• The central government, in consultation with the RBI, may issue digital rupee as legal tender.
• The RBI may also notify a digital currency recognised as legal tender in a foreign jurisdiction, as a foreign currency.

Does the report of the committee make sense?

According to our reason and analysis, it doesn’t. Here’s why:

• Cryptocurrencies aren’t supposed to be used as a legal tender or any currency for that matter. Although El Salvador has declared it a national currency, it isn’t fit to be a currency as defined by macroeconomics fundamentals.
• Nobody can regulate its circulation and it is highly volatile in nature. Usually, the currencies hold certain value against each other, say 78 INR is 1 USD. Why is it so? RBI substantially undervalues INR against USD because of the macroeconomic fundamentals. It makes more sense for a developing country like India to undervalue its currency to gain fair trade value for its exports. But Cryptocurrencies cannot be regulated in terms of regulation.
• The real use of cryptocurrencies is on their respective blockchains. They act as fuel to enable the users to operate on blockchains and derive utility from it.
• Cryptocurrencies are merely trading assets. They are not currencies to be circulated for several reasons.
• Bitcoin is digital gold and not digital USD.
• There is one thing common between a cryptocurrency and a real currency. They both lack underlying intrinsic value. In fact, there is no such thing as intrinsic value. There are only associated values at the core of the understanding of reality.

What the government has to say?

The decision was made in response to fears that bitcoin is being used to deceive investors and fund illegal activities. Furthermore, because Bitcoin is not issued by a central bank and has no sovereign backing, it is impossible to track and document.

This decision is based on the report, which, according to our analysis, is flawed. The report’s findings are generic and completely out of the context and misdirecting.

The idea of launching a digital currency in India named “Lakshmi” isn’t new. The finance ministry had proposed this a year ago as well. The report only seems to reinstate this proposal.

And about the government’s concerns regarding the money that goes into the cryptocurrencies cannot be tracked, it is a genuine issue. When the cryptocurrency changes hands, it is indeed not possible for anyone to know who is the current owner. In fact, nobody even knows who is Satoshi Nakamoto, the alias of the person who created bitcoin, who is today holding bitcoins of worth over $56 Billion.

But, here’s a catch. When you sign up with any cryptocurrency trading platform, you need your ID proof and PAN card to create an account. Therefore, it is possible to track the capital gains. However, the problem seems to be associating the ownership of these cryptocurrencies, which is not really a problem.

What was actually needed was regulation of these cryptocurrency markets which could have even given rise to new business opportunities, say, wallet insurance.

For the time being, the future of blockchains in India seems bleak. Such a powerful technology is basically being left for the rest of the world to exploit commercially. Without the cryptocurrencies, the blockchains cannot be utilized commercially and the market is worth more than a trillion dollars. Possibilities were numerous.

What will actually happen in regards to the proposed bill, will be declared during the announcement of the budget in the next session.