In the list released by the Government on Business expected to be taken up during the 7th Session of 17th Lok Sabha, 2021, a new bill titled: The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 is to be introduced in parliament.
The Govt defines the purpose of the bill as
- To create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India.
- 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.
It’s worth pointing out that the description of this bill is identical to the one New Delhi listed for the previous parliamentary session earlier this year. The winter session of the parliament starts November 29. 
It is highly likely the government aims to ban cryptocurrencies as a payment method, meaning it leaves the doors open for it being regulated as a separate asset class, likely to be regulated by the Securities Exchange Commision of India.
This is in line with the nature of the bill as its purpose is to empower the RBI to create a CBDC.
It would also bring into clarity from a regulation standpoint that cryptocurrencies can not be used as a payment method. This ambiguity was left open by the SC judgement last year.
It would also bring into clarity from a regulation standpoint that cryptocurrencies can not be used as a payment method. This ambiguity was left open by the SC judgement last year.
The standpoint that crypto cannot be used for payments is further strengthened by the actions below:
- On Sept 3rd 2021, India’s leading newspaper, The Economic Times, reported that cryptocurrencies will be treated as an asset/commodity for all purposes, including taxation and as per user case.
- Prior to this bill, there was no clarity as to whether crypto assets were currency, commodity, services or closer to equity. This gap in the law is exactly what the government plans to eradicate.
- The ET article reported that “The government in its draft bill is working towards defining cryptocurrency and its treatment in various use cases, so that it can be treated correctly in the books of accounts plus it should be taxed in the right manner,” a person with..
..knowledge of the matter said. “It [the government] is not looking to allow payments and settlements through virtual currencies.”
- On Sept 17 it was reported that The Securities and Exchange Board of India could be designated as the regulator, but no “final call” has been taken on this issue
- It was also reported the exchanges are pushing for a regulatory sandbox to fine-tune the regulations.
- It was also reported the exchanges are pushing for a regulatory sandbox to fine-tune the regulations.
- Furthermore, the parliamentary standing committee on finance that met crypto industry representatives on Nov 17th seemed to favor regulation and not a complete ban, the stand espoused by industry representatives.
- Prime Minister Narendra Modi on Nov 19th called on democratic nations to ensure that cryptocurrency does not end up in the "wrong hands", and cautioned that new-age technologies have the potential..
..to be used as instruments of conflict and domination. This may imply a policy of regulation as opposed to a flat ban.
All these articles indicate the fact that the Indian Govt is likely to ban private cryptocurrencies as a currency and a means of payment.
In this scenario all cryptocurrency other than the one issued by the Govt of India falls under the definition of a “private cryptocurrency” and this is what we believe is likely to happen. The wording of the..
..bill, we believe, has to be understood in context of the nature of the legislation the bill is planning to introduce.
It also mentions that certain exceptions are provided to promote underlying technology which makes sense from a legal perspective to keep options open to..
It also mentions that certain exceptions are provided to promote underlying technology which makes sense from a legal perspective to keep options open to..
..adopt the latest underlying technology for the CBDC. It becomes imperative from a regulation standpoint as the nation has elections in 7 critical states next year . The clarity that cryptocurrency..
..can not be used as a payment method ensures loopholes can't be exploited. The bringing forward of the tabling of the bill also indicates the same.
Even if we decode the purpose of the bill literally, the language of the bill is vague and ambiguous.
There is no clear definition as to what private cryptocurrencies are. The bill will need to define the same. It can mean any one of the 3 or a totally new definition:
There is no clear definition as to what private cryptocurrencies are. The bill will need to define the same. It can mean any one of the 3 or a totally new definition:
1. Privacy coins such as monero
2. Centralised structure blockchains such as XRP
3. All blockchains other than the one created by the GOI for CBDC
2. Centralised structure blockchains such as XRP
3. All blockchains other than the one created by the GOI for CBDC
This final interpretation is highly unlikely considering that the Govt understands that the retail investors have invested close to $6.6 billion in the sector. The industry also directly and indirectly employs 50k people. The Govt understands the international regulatory..
..landscape, as seen in multiple interviews. It has reiterated that regulation is the way ahead, not an outright ban.
It is also important to note that this is what the gov thinks should be the law and is in no means the final shape of the law. It has to be debated and passed by the parliament to become law.
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