India’s Prime Minister Narendra Modi is preparing to introduce the “Cryptocurrency and Regulation of Official Digital Currency Bill”, which would ban ownership of any non-state regulated cryptocurrencies by Indians.
The bill looks to criminalise owning, trading, mining, trading or transferring cryptocurrencies in India, making it the first country to introduce legislation of this kind. Why is this happening? And what will it mean for the future?
India and Cryptocurrencies
India has tried to implement financial bans in the past, although they have not been successful. Most recently, in 2016 the Indian government tried to demonetize high-value banknotes, essentially making 500 and 1000 rupee notes worthless – estimated to be 85% of all notes in the economy.
This was intended to flush out counterfeit or undeclared illegal money, but despite the chaos caused by everyone trying to quickly bank their notes before they lost their value, it is estimated to not have helped curb fraud. 99% of all votes had been accounted for afterwards, with any fraudsters hiding their profits elsewhere. However, with the switch to digital payments, tax revenues increased, giving the policy a small success.
Furthermore, in 2018 the Reserve Bank of India (RBI) issued a ban on banks operating in the country to stop them from dealing in cryptocurrency, giving them three months to cash out and quit. This was another attempt to crack down on fraudulent payments, with the likes of Bitcoin banned from use.
However, this ban was overturned by the Indian Supreme Court in 2018. The Supreme Court said that while the RBI could take pre-emptive measures, there was no proportionality in their ban considering the lack of evidence of damages suffered by cryptocurrencies in India.
Now it looks like a broader ban is coming, and it might have less to do with tackling fraud and more about controlling the supply of the cryptocurrency.
The Digital Rupee
With the 2021 Cryptocurrency Bill, it would affect a market in India worth a suggested $1.5 billion. With these measures, private accounts would have six months to cash out their bitcoin portfolios, or else face penalties or even a ten-year prison sentence. However, this is reportedly in preparation for the issue of an Indian national cryptocurrency, which would be controlled by the RBI.
The attempt to remove cryptocurrencies in exchange for their own is because most are decentralised fiat currencies. By being decentralised, they are not tied down to any one institution and cannot be regulated like other currencies, instead of depending on blockchain technology to make their transactions reliable and authentic.
A digital Indian currency, such as a “digital rupee”, would be managed by the central bank to protect its transactions, while also regulating the value of the fiat currency, which would not be tied down to a physical property such as the value of gold, for example.
In essence, banning decentralised cryptocurrencies while promoting your centralised national currency means that you control the market for crypto, allowing the RBI to ensure the volatility of its value and not let it fluctuate.
India is not the first country to try and introduce their national cryptocurrency, as their neighbour and rival China have started trialling their own “digital yuan“. China has cited similar concerns about fraud and the relative ease of counterfeit physical money. The suggestion is that QR codes would be used to pay for things, meaning the phone would cement its place as the new bank card.
Narendra Modi’s Bharatiya Janata Party comfortably controls both buildings in the bicameral Indian government, so it is expected that this bill will not face any obstacle becoming law. However, with previous mixed results and a Supreme Court decision against them, the future for cryptocurrency control might not be entirely certain for India.
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