An inter-ministerial committee has suggested banning of private cryptocurrencies like bitcoin and criminalising any activities related to virtual currencies.
It, however, pitched for introduction of an official digital currency with a status of a legal tender and appropriately regulated by the Reserve Bank of India. The report by the committee was released on Monday.
The government had constituted an inter-ministerial committee (IMC) on November 2, 2017, under the chairmanship of the economic affairs secretary, with secretary of the Ministry of Electronics and Information Technology, Sebi chairman and an RBI deputy governor as members to study the issues related to virtual currencies, and propose specific action.
“As for private cryptocurrencies, given the risks associated with them and volatility in their prices, the group has recommended banning of the cryptocurrencies in India and imposing fines and penalties for carrying on of any activities connected with cryptocurrencies in India,” said a release in this regard.
The report said that other than Bitcoin, several other cryptocurrencies have emerged, including Ethereum, Ripple and Cardano.
As of now, there are around 2,116 cryptocurrencies, with a market capitalisation of $119.46 billion, it added.
“Committee is very receptive and supportive of distributed ledger technologies and recommends its widespread use in delivering financial services. It also opens up door for a possible official digital rupee. Private crypto currencies are of no real value. Rightly banned,” Subhash Chandra Garg, Secretary, Department of Economic Affairs, said in a tweet.
The committee has also suggested a draft legislation – the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.
This report and the draft bill will now be examined in consultation with all the departments concerned and regulatory authorities, before a final decision is taken by the government, the release said.
Meanwhile, the report has also highlighted the positive aspect of distributed-ledger technology (DLT) and suggested various applications, especially in financial services, for use of DLT in India.
“The DLT can be of great benefit to India in several financial and non-financial areas. In finance, DLT can be particularly beneficial in the areas of trade financing, lowering the costs of personal identification for KYC related issues, and improving access to credit,” as per a recommendation of the panel.
The DLT-based systems can be used by banks and other financial firms for processes such as loan-issuance tracking, collateral management, fraud detection and claims management in insurance, and reconciliation systems in the securities market.
Also, regulators including the RBI, Sebi, IRDA, PFRDA and IBBI should also focus on DLT to explore building of appropriate regulations for development of the technology in their respective areas.
As virtual currencies and its underlying technology are still evolving, the group has proposed that the government may establish a standing committee to revisit the issues addressed in the report as and when required.
However, the group also said the government should have an open mind on the cryptocurrencies.
“The committee is of the view that it would be advisable to have an open mind regarding the introduction of an official digital currency in India,” the report said.
As per the panel, which is against private virtual currency, there is no underlying intrinsic value of these private cryptocurrencies.
“These private cryptocurrencies 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,” it said.
Since their inception, cryptocurrencies have demonstrated extreme fluctuations in their prices. Therefore, the committee was of “clear view” that the private crytocurrencies should not be allowed.
“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,” it said.
Virtual currency is therefore distinguished from the Fiat currency of a country that is designated as its legal tender.
Earlier, the RBI had set up a committee to explore feasibility of launching an official digital currency amid central banks around the world exploring the option of introducing fiat digital currencies.