The government will soon introduce a bill in parliament that will explicitly ban private cryptocurrencies such as bitcoin, as it agrees with the central bank that allowing private parties to gamble with currencies can potentially threaten the stability of the financial sector.
But the Cryptocurrency and Official Digital Currency Regulation Bill, 2021, will make it easier to launch any official digital currency and strengthen an ecosystem around it. The Reserve Bank of India (RBI) is on the verge of deploying such a currency.
While senior government officials and the RBI have always made their opposition clear to private cryptocurrencies, the bill will be introduced to provide strong legal support for the ban and is expected to remove all ambiguities around it. a source told FE.
“The introduction of currencies is a sovereign function, and it must remain so,” the source added. Additionally, with technology changing the way people transact, it’s important to have a framework for various payment methods, he added.
The price of bitcoin jumped last month after electric car maker Tesla announced its purchases of the $ 1.5 billion cryptocurrency. However, it fell about 10% a few days later after Elon Musk saw the price of bitcoin appear high. Bitcoin has peaked in value since October 2020, dropping from around $ 10,000 per unit to almost $ 50,000 now, beating the returns seen in most asset classes.
Last year, the Supreme Court overturned a 2018 RBI circular that banned financial sector entities from offering services to any individual or business dealing with virtual currencies. This reflects the concern that existing laws are inadequate to deal with the proliferation of private cryptocurrencies. Strong legal support could therefore go a long way in removing any ambivalence on the issue.
Cryptocurrencies generally operate independently of a central bank. These are basically digital currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds.
In 2019, an inter-ministerial committee led by then-Secretary of Economic Affairs Subhash Garg suggested that private cryptocurrencies like bitcoin be banned and that all activity related to virtual currencies be criminalized.
Even the central bank had, through public notices in December 2013, February and December 2017, warned holders and traders of virtual currencies of the risks associated with processing such currencies.
The authorities’ failure with bitcoin stems from the fact that it does not derive its value from any underlying asset or profit. Since its value depends only on what an investor is willing to pay, it can easily be swayed by speculative offers. In addition, these currencies generally keep the identity of the owners anonymous, making it difficult to track its flow. This can lead to security risks and currencies can be used to channel black money.