An Inter-Ministerial Committee set up to look into cryptocurrencies and blockchain has called for banning private cryptocurrencies in the country.
- The Committee was set up by the government under the chairmanship of Economic Affairs Secretary, officials of the Ministry of Electronics and Information Technology, SEBI and the RBI.
- It has submitted its recommendations to the Finance Ministry.
- It mooted a complete ban on private cryptocurrencies in the country but asked the government to keep an open mind on any Reserve Bank of India issued cryptocurrency.
- It noted that the provisions in the RBI Act enable the RBI to approve a ‘Central Bank Digital Currency’ and recommend it as a banknote and legal tender in India.
Lack of Value
- The report submitted by the Committee notes that cryptocurrencies lack intrinsic value and do not have any attributes of a currency. It neither has store value nor are they a medium of exchange in themselves.
- Citing this, the committee firmly believes in banning cryptocurrencies.
- The committee also drafted law, the ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’, which has penal provisions such as a fine and imprisonment up to 10 years.
- The law states that those who mines, distributes, sells, buys, holds or issues cryptocurrencies will face a jail term ranging from 1 to 10 years.
- The proposed fine will be three times higher the loss caused or the three times higher the gains accrued whichever is higher.
- While calling for a ban on cryptocurrencies, the committee highlighted the benefits of blockchain technology and Direct Ledger Technology (DLT), the underlying technology used in a cryptocurrency.
- The committee is of the view that the technology can be used for developing faster and secure payments infrastructure, especially in cross-border payments.
- It also noted that low-cost KYC systems can be developed using DLT technology.
- In the banking arena, the technology can be used for tracking loans, manage collaterals, detecting fraud, claims management in insurance, etc., the committee noted.
- Further, the committee noted that the technology can be used to strengthen the land market by maintaining fool-proof records.
Cryptocurrencies came to the fore with Bitcoins. Initially, these currencies showed promise as an alternative to hard currency. But, as things unfold there is so much risk associated in dealing with these and people are losing their money. Yet, companies like Facebook, which launched its cryptocurrency Libra are betting big on the digital currency.
As the committee noted, there is not much use for cryptocurrencies in the Indian economy. Also, by suggesting to be open-minded on RBI developed currency, a channel will be open to using such currencies.
Cryptocurrencies are also notorious for they can be used as a channel for money laundering. The Financial Action Task Force (FATF) has already noted that these are potentially being misused for terror financing. In such a scenario, the proposed ban on such currencies is understandable.
On the technology part, blockchain has immense potential to transform the economy. From payments to accounts maintenance and managing land records, the technology enables both public and private entities to be transparent in their operations and deliver services efficiently. It improves the overall governance.