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Inter-ministerial group suggests banning of private cryptocurrencies in India
What to study?
For prelims and mains: Cryptocurrency- meaning, features, need for regulation and key recommendations.
Context: Inter-Ministerial Committee on Virtual Currencies headed by finance secretary Subhash Chandra Garg has submitted its report to the government. The committee set up by Centre has also proposed a draft bill ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’.
- Ban on all forms of private cryptocurrencies.
- Impose a fine of up to Rs 25 crore and imprisonment of as much as 10 years for anyone dealing in them.
- RBI and the government may look at the introduction of an official digital currency in the country.
- Establish a specific group by the department of economic affairs with participation by the RBI, department of financial services and the ministry of electronics and information technology (MeitY) for examining and developing an appropriate model of digital currency in India.
- The panel backed use of distributed ledger technology (DLT) or blockchain for selected areas. It has asked the department of economic affairs to take the necessary measures to facilitate the use of DLT in the financial field after identifying its uses.
- It has also suggested the use of DLT to reduce compliance costs for know-your-customer (KYC) requirements.
- Data localisation requirements proposed in the draft Data Protection Bill may need to be applied carefully, including with respect to the storage of critical personal data so as to ensure that there is no adverse impact on Indian firms and Indian consumers who may stand to benefit from DLT-based services.
The recommendations, if accepted by the government, will be a blow to digital currency aspirants in India such as Facebook as well as exchanges currently operating in the country by circumventing Reserve Bank of India (RBI) norms by undertaking peer-to-peer trading.
Cryptocurrency has been defined as “any information or code or number or token not being part of any official digital currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchange with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”
Why IMC proposed Ban on Cryptocurrency?
- All the cryptocurrencies have been created by non- sovereigns and are in this sense entirely private enterprises.
- There is no underlying intrinsic value of these cryptocurrencies back they lack all the attributes of a currency.
- There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor they are a medium of exchange.
- Since their inceptions, cryptocurrencies have demonstrated extreme fluctuations in their prices.
- These crytocurrencies cannot serve the purpose of a currency. The private cryptocurrencies are inconsistent with the essential functions of money/currency, hence private cryptocurrencies cannot replace fiat currencies.
- A review of global practices show that they have not been recognised as a LEGAL tender in any jurisdiction.
- Committee also recommends that all exchanges, people, traders and other financial system participants should be prohibited from dealing with cryptocurrencies.
Mains Question: What do you understand by cryptocurrency? Do you think legalising the crypto market can help beneficiaries emerge from the shadows and make productive investments in an economy witnessing a digital transformation? Critically analyse.