Current Affairs 2022: Highlights of Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

By Shubham Singh

The cryptocurrency was discussed in the Indian Parliament recently. Read here some important points regarding Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.

Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was tabled in the recently concluded winter session of the Parliament last year. As per the sayings of finance minister Nirmala Sitharaman, the new crypto bill was introduced after the approval of the cabinet. Earlier in February, the finance minister said that a high-level Inter-Ministerial Committee (IMC) was established under the leadership of the Chairmanship of the Secretary of Economic Affairs to look up the issues related to virtual currencies like cryptocurrencies in the country.

The main objective of the bill is to ban all private cryptocurrencies from India and allow the government regulated virtual currencies to promote the underlying use of technology. Currently, there is not any regulation in the country regarding cryptocurrency.

What are cryptocurrencies?

Cryptocurrencies are digital money that is used to build the asset virtually. They are not officially issued by any government neither they are legal in any country. The structure of cryptocurrencies are decentralized and the network is distributed across computers all over the world. This is the blockchain technology that is far from the interruption of governments and local authorities.

The main advantage of these cryptocurrencies are they are fast in terms of transferring money without a single chance of failure, no interruptions from governments and no one can hack your system as it is decentralized.

The disadvantage of cryptocurrencies is that they are very volatile and the government does not have any control over these currencies; thus, there are very high chances to backfire the virtual currencies as well as the criminal activities. A high amount of energy is required to mine coin activity as well.

What is the need for regulation on cryptocurrencies?

 The use of cryptocurrencies is increasing day by day. After the rolling out of many software, it is very easy to trade crypto. The trade of these virtual currencies is a single click away to be successful. Governments have no control over these virtual currencies. They are very volatile and the Indian youth are very prone to get damaged or side-tracked by these currencies since authorities have no control over them.

The Reserve Bank of India has expressed its serious concerns about cryptocurrencies since 2017. In July 2017, the RBI governor of that time informed a parliamentary panel that the central bank was keeping a close eye on transactions involving cryptocurrencies. The RBI had issued a circular prohibiting banks and entities regulated by it from providing services related to virtual currencies. However, on 4 March 2021, the Supreme Court of India had quashed the circular.

History of Cryptocurrencies in India

It was 2013 when the Reserve bank of India issued a warning circular to the public regarding the use of cryptocurrencies within the country. That was the first time we heard about cryptocurrencies in India. The bank warned virtual currency users, holders and traders about the potential financial, operational, legal, customer protection and security risks they can face.
After 2013, India went into a cold bag for 4 years. There were no further steps taken nor any official statement regarding the development of cryptocurrencies was declared in India. Finally, on 1 February 2017, the RBI issued another circular reiterating its concerns about virtual coins. And in late 2017, a warning was issued by the RBI and the Ministry of Finance clarifying that virtual currencies are not legal tender.

In March 2018, the Central Board of Digital Tax (CBDT) submitted a draft proposal to the finance ministry to ban virtual currencies. A month later, the RBI issued circular preventing banks and financial institutions from providing financial services to virtual currency exchanges. The chairman of the Central Board of Digital Tax (CBDT) at that time, Sushil Chandra, said the cryptocurrencies are creating a chain of black marketing inside the country.

On April 6, 2018, the RBI issued a circular asking commercial and cooperative banks, payment banks, small finance banks, NBFCs and payment system providers to stop dealing in virtual currencies or providing services to any entity dealing in crypto exchanges.

After much of this hustle, the finance ministry finally drafts a bill and proposes an idea of drafting a committee that will assist the government regarding the future of cryptocurrencies within the country.

Formation of SC Garg Committee

The SC Garg Committee 2019 had proposed a complete ban on cryptocurrencies in its report named "Report of the Committee to propose specific actions to be taken in relation to Virtual Currencies". The committee had noted with concern that cryptocurrencies, almost invariably issued abroad, were proliferating and large numbers of people in India were investing in them.

Aftermath of Committee

After the recommendation of banning the cryptos and the regulations from RBi, a PIL was filed in the supreme court to lift that regulatory ban that was imposed by the RBI. Finally, in March 2020, the supreme court of India has struck down the RBI's ban on cryptocurrencies, which prevented banks and financial institutions from providing access to banking services to those who transacted in cryptocurrencies.

Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

In November 2021, the Prime Minister of India Narendra Modi had been vocal for the first time and called a high-level meeting with the senior officials for the cryptocurrencies bill. He said that cryptocurrency should not end up in the wrong hands, which can spoil our youth.

During the winter session of the parliament, the finance minister of India said that Cryptocurrencies are a risky area and not yet fully regulated. Government has yet to take a stand on advertisements related to cryptocurrencies. SEBI and RBI were asked to raise awareness about cryptocurrencies. There were also no proposal to recognise bitcoin as a currency in the country.

Follow here for More Current Affairs Topics