Proposed Ban On Cryptocurrency In India: An Analysis Of

'Banning Of Cryptocurrency & Regulation Of Official

Digital Currency Bill, 2019
BY: VIKASH KUMAR BAIRAGI
28 July 2019 10:31 AM

334
SHARES

Much awaited report of the Inter-ministerial Committee constituted under the

Chairmanship of Shubash Chandra Garg (Secretary, Department of Economic
Affairs) to study the issues related to Virtual Currency and propose specification
recommends that all Private crypto-currency, except any cryptocurrency issued by
the state government, be banned in India because of volatility in their price and
there is no underlying intrinsic value of it. In addition to the ban, fines upto Rs. 25
Crore and the imprisonment of 10 years for carrying any activities connected with
cryptocurrencies in India. While crypto community criticised the report that it's a
regressive step and closing doors for innovation.

Also Read - Do The NI Act Amendments Apply Retrospectively?

No Crypto but Digital Currency for India-

In the third chapter of the report committed projected the idea of Central Bank
Digital Currency (CBDC) that shall be the "Digital Rupee" to be the sole
cryptocurrency
334 in India having the following key attributes as a) It is issued by the
SH ARE S
Central Bank. b) It is a third variant in addition to cash and reserve money and c) It
could serve as a competitor to cash and bank account money. CBDC shall allow
anonymity, full availability and for transfer various taxonomies such as peer to peer
transfer, account-based, Value-based.

Also Read - UAPA Amendment : Why Giving Govt Power To Declare Individuals 'Terrorists'
Is Problematic?

In a research paper by George and Sarah elaborately explained the CBDC

framework. The central bank will have complete control over the money supply,
while the maintenance of the transaction ledger will be done through mintettes. The
mintettes are analogous to miners, however, instead of performing a
computationally difficult task to validate transactions, they will be authorised to
collect transaction and collate in into blocks. The authorisation will be provided by
the central bank through a public-key.

An analysis of the proposed Bill "Banning of Cryptocurrency and Regulation of

Official Digital Currency Bill, 2019" (hereinafter referred to as "Bill")

As the title of the Bill suggest it is divided into two major parts, First Prohibition of
Cryptocurrency and Second, Regulation of Official Digital Currency

Prohibition of Cryptocurrency-

The Bill defines Cryptocurrency

[1] as by whatever name called, means any information or code or number or token

not being part of any Official Digital Currency, generated through cryptographic
means or otherwise, providing a digital representation of value which is exchanged
with or without consideration, with the promise or representation of having
inherent value in any business activity which may involve risk of loss or an
expectation of profits or income, or functions as a store of value or a unit of account
and includes its use in any financial transaction or investment, but not limited to,
investment schemes;

This definition includes all the prominent crypto-currencies i.e.- Bitcoin, Litecoin,
Etrereum, Zcash, Ripple, Moneo, Cardano and other 2116 private Crypto-currencies.
It proscribes that whoever directly or indirectly mines, generates, holds, sells, deals
in, transfers, disposes of or issues cryptocurrency shall be punishable with fine or
with imprisonment which shall not be less than one year but which may extend up
to ten years, or both.

334
SH ARE S
[2] While Bill shall allow using of technology or processes underlying any

Cryptocurrency for the purpose of experiment or research, including imparting of

instructions to pupils provided that no cryptocurrency shall be used for making or
receiving payment in such activity.[3]

Regulation of Digital Currency

This part not only regulates Indian Digital Currency that shall be legal tender but
also recognises and regulates the official Foreign Digital Currency as a Foreign
Currency as per the regulation notified by Reserve Bank under the relevant
provisions of the Foreign Exchange Management Act, 1999 and.
[4]

This Bill is against the spirit of the recent G20 Finance Minister's Meeting where
India at the meeting had shown consensus with the rest of the countries to regulate
crypto-assets and apply the recently amended Financial Action Task Force Standards
to Virtual Currencies and related providers for anti-money laundering and
countering the financing of terrorism. It shall also affect the present bitcoin holders
that are around 3 millions in India. If the bill become the act after parliamentary
scrutiny it shall be an offence to hold, sell or transfer of cryptocurrency therefore
some relaxation should be given to existing holder of private currency to convert
into legal tender money .

Conclusion

The author is of the view that committee report maintains a balanced approach by
supporting innovation through Distributive Ledger Technology aka Blockchain
Technology and recommends its widespread use in delivering financial services
simultaneously ban "Private currency" that may severely affect the economy.
Unfortunately, this approach is not seen in any jurisdiction yet. However this is not
the goal post of a long marathon, still, the Bill shall be examined by all the
concerned department and Regulatory Authorities, Before Government takes a final
decision and give a statutory mandate to it.

Vikash Kumar Bairagi, Student National University of Study and Research in Law,
Ranchi

[1] Section 2(1) (A) of the Bill

[2] Section 8(1) of the Bill

[3] Section 3(2) of the Bill

334
SH ARE S