Cryptocurrency Regulation Bill, 2021 – UPSC GS3

Government has introduced a bill to ban all private cryptocurrencies in India and provide a framework for the creation of an official digital currency to be issued by the Reserve Bank of India.

The Bill is titled “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021″.

The Reserve Bank of India in the year 2018 had ordered financial institutions to sever all ties with individuals or businesses involved in virtual currencies such as bitcoin within a time span of three months.

However, in 2020, the Supreme Court allowed banks to handle cryptocurrency transactions from exchanges and traders, overturning RBI ban.

The Court found that a blanket ban was disproportionate and that virtual currencies had caused no visible damage to banks regulated by the RBI.

There have been attempts by several governments across the globe to regulate cryptocurrencies, but so far there has been no major economy that has chosen to place a blanket ban on owning them.

Ecuador, China, Senegal, Singapore, Tunisia have their own cryptocurrencies.

Several countries have raised concerns about the misuse of consumer data and its possible impact on the financial system.

Private digital currencies have gained popularity in recent years, which has led to the regulators and governments to be wary of the risks these currencies pose.

Check on Volatility: Private Cryptocurrencies are too volatile and pose a threat to India’s financial stability. A fiat currency shouldn’t portray such volatility. For instance, Bitcoin’s price has risen more than 10-fold over the last year.

Curb Illegal Activities: In April 2018, RBI banned banks and other regulated entities from supporting crypto transactions after digital currencies were used for frauds. In March 2020, the Supreme Court clarified that crypto transactions were not illegal in India.

Ascertaining the Magnitude of Undisclosed Holdings: Once private currencies are banned, then all investors would have to declare their true digital holdings in order to exit within the permissible window. As per an unofficial estimate, Indian investors hold around $1.5 billion (Rs 10,000 crore) in digital currencies.

The government needs to clear the uncertainty regarding the legal status of cryptocurrencies in the minds of Indian investors.

Further, it also needs to ascertain the economic and social impact of closing startups that function on private cryptocurrencies like Unocoin, Zebpay, etc.