English (India)

India launched a surgical strike on private Cryptos

calendar 24/11/2021 - 16:51 UTC

On Tuesday, the Indian Federal Government introduced a Crypto regulation bill of official CBDC (Central Bank Digital Currency) for consideration of the Parliament and passage of the same. The bill is named: “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”.

The purpose of the Crypto bill is mentioned as:

“To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

The Crypto bill will be introduced in the upcoming Winter Session of the Parliament wef 29th Nov’21 for discussion, consideration, and possible passage of the same. The Indian Central Bank RBI will be approved by the Parliament (Congress) for the creation of an official CBDC. The bill also seeks to prohibit/ban all other private Cryptos in India with some exceptions to promote/use underlying technology. The official CBDC will be like digital INR (currency) to promote digital payment (like an official payment bank).

The development was unexpected as the market was expecting a stricter Crypto regulation, but not a blanket ban. Subsequently, on Monday, Cryptos (almost 24 varieties) traded in Indian Crypto service provider (exchange) crashed by 15-20%. But BTC, ETH and LTH recovered from panic low on hopes of exceptional allowance by the Government. Overall, the introductory language of the Crypto Bill is quite confused and the Government has to clarify the same in the coming days.

In any way, the Indian Government may ban private Crypto trading in India completely, allowing only CBDC. And may also allow trading for certain private Cryptos like BTCUSD, ETHUSD and LTCUSD (for all or HNIs). But this Crypto bill maybe just a draft, not the finalized form. The Government may soon invite public/expert comments and consider all the pros & cons of a blanket/partial banning.

On Wednesday, an influential Lawmaker (TMC) Saugata Roy said:

“My understanding is the govt has not finalized the crypto bill yet. Govt has not finalized the crypto bill yet, the timeline hasn't been finalized either---RBI is worried about the impact on Forex. Cryptocurrency is already being used by 1 crore people---Government has mentioned its intention to bring the bill. My view is a ban on private Cryptocurrency is the only way possible. Some believe there should not be a total ban, but regulation is necessary. RBI is worried about the impact on forex. There is little scope for keeping Crypto and imposing regulation via RBI. And RBI may create an official digital currency. China has completely banned Crypto; major economies do not allow Crypto. The Government may allow RBI to float a digital currency.”

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In any way, this Crypto ban move by Indian PM Modi reminds his DEMO (demonetization) move back in late 2016, which was seen as a ‘surgical strike’ on black/unaccounted money (accumulated by some corruption and laundering). The Government is conscious of growing financial stability issues after millions of millions of Indians, even ordinary young and senior citizens are pouring their hard-earned money for an attraction of getting rich quickly.

India’s Crypto market has boomed since the country’s SC overturned a previous ban in April last year, growing more than 600% over the past year. Almost 100M Indians may own Cryptos and TV ads for Crypto exchanges pouring like FMCG goods! The new rules are also likely to discourage marketing and ad of cryptos, targeted at the ordinary ignorant people.

Although the Indian Crypto market crashed, the global market was stable as the volumes of the Indian Crypto market are almost negligible (in $ terms around 5.50B). Also, there is no significant Crypto/Bitcoin mining. India’s Central Bank (RBI) announced in June that it is working to introduce its digital currency (CBDC) by the end of the year (2021) while warning it has ‘serious concerns’ about Cryptos.

A few weeks ago, Indian PM Modi said all democratic nations must work together to ensure cryptos ‘does not end up in wrong hands, which can spoil our youth’; i.e. the Government is concerned about possible money laundering and terror financing. Modi recently chaired a meeting to discuss the future of cryptos, amid concerns that unregulated crypto markets could become avenues for money laundering and terror financing. The market was expecting that the government may be looking to classify crypto as an asset class, rather than a currency as demanded by Indian crypto exchanges. But now it seems that the plan is to ban almost all private crypto-assets while paving the way for a new Indian CBDC.

 

 

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