A legal framework to regulate and govern the burgeoning cryptocurrency investment market in India may now see the light of the day by next February. Finance Ministry officials have told Business Today Television that a law for cryptocurrencies would most likely come around by the time of the next general Budget.
The proposed framework is likely to veer away from an earlier approach that had proposed a complete ban on cryptocurrencies. Instead, the government is likely to opt for regulating cryptocurrencies as an “asset” class, somewhat on the lines of commodities, with appropriate taxation of transactions and gains.
Officials of the Finance Ministry and the Reserve Bank of India (RBI) remain engaged in fine-tuning the conceptual framework and the necessary regulations, another official added.
The thinking, the Finance Ministry official said, was towards a regulation that seeks to avoid potential pitfalls. “What should not happen tomorrow is that if I start a personal digital currency, and after good marketing everybody buys it and once it has appreciated, I run away since I am a private player! Everybody has actually bought that currency by using other assets. Government needs to look at regulation in order to avoid the above”.
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Currently, India does not have any legal framework governing the issuance, use, and trade of cryptocurrencies. India is said to be among the fastest growing cryptocurrency markets globally, with an estimated 15 million Indians having invested in private cryptocurrencies in the recent past. A combination of factors including dozens of start-ups operating in this space has fuelled an unprecedented investment boom, despite the seeming risks of investing in an unregulated product.
Cryptocurrency trading in India has witnessed a sharp uptick since May this year, after the RBI clarification that told regulated banks to not warn customers against cryptocurrency trading. That move capped a legal challenge to an earlier 2018 order by the central bank barring cryptocurrency transactions.
In 2019, a Finance Ministry committee had proposed a draft Bill – the Banning of Cryptocurrency & Regulation of Official Digital Currency Bill. The move was quietly scrapped.
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Over the past several months, the central government seems to have preferred to tread cautiously on this matter. In March this year, Finance Minister Nirmala Sitharaman had said that the cabinet note on cryptocurrencies was nearing completion. “While we are very clear that the RBI may take a call on official cryptocurrency, but from our side we are very clear, we are not shutting all options off. We will allow a certain amount of windows for people to use so that the experiments in blockchain, Bitcoin will have that window available.”
In September this year, RBI Governor Shaktikanta Das was quoted as saying that the central bank had conveyed its serious and major concerns about cryptocurrencies from the point of view of financial stability. “The government will take a decision. I think we need more credible answers as to whether going forward with the whole private cryptocurrencies, what contribution will it bring to Indian economy,” Das had said.
Earlier this month, Sitharaman was quoted as saying that the proposed framework was “in the last stages for the Union Cabinet to take it up, have a discussion and take a position”.
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