India sows confusion with plan to ban ‘private cryptocurrencies’

By Diksha Madhok, CNN Business

India is flirting with a ban on cryptocurrencies.

Prime Minister Narendra Modi’s government on Tuesday said that it is preparing to introduce a bill that would regulate digital currencies.

There’s still much that’s unknown about the proposal. A cryptically worded description of the bill posted on the Indian parliament website outlined a plan to “prohibit all private cryptocurrencies in India.” But the bill also says it would allow for “certain exceptions to promote the underlying technology of cryptocurrency and its uses.”

The Modi government also wants to help the Reserve Bank of India, the country’s central bank, create an official digital currency, according to the notice posted about the draft legislation.

That language leaves a lot of room for interpretation. The bill didn’t specify what is meant by “private” cryptocurrencies, so it’s not clear whether that applies to the world’s most heavily traded coins, including bitcoin and ethereum. India’s finance ministry did not immediately respond to questions from CNN Business about the bill.

The proposal will be presented to parliament in a session that starts Monday.

A history of tension

This isn’t the first time potential restrictions on digital currencies has rankled crypto traders and investors in India, one of the world’s fastest growing economies.

In 2018, the central bank prohibited Indian banks from dealing with cryptocurrency exchanges, citing “concerns of consumer protection, market integrity and money laundering, among others.”

Two years later, that ban was struck down by India’s top court. But investors continue to worry that Modi’s government — which has compared cryptocurrencies to “Ponzi schemes” — could bring down the hammer. In March, Reuters reported, citing unnamed sources, that the government was planning on “fining anyone trading in the country or even holding such digital assets.”

So far, such fines haven’t materialized. And some of India’s top government officials have taken a softer tone when discussing such assets.

The finance minister in March said that “we are not shutting off all options” and that the country “will allow a certain amount of window for people to experiment on blockchain and bitcoin.”

Anirudh Rastogi, founder of tech law firm Ikigaw Law, told CNN Business that the government is wary of cryptocurrency because it can be used for money laundering and evasion of taxes. The government is also concerned about the impact on investors.

“Some of these coins can be quite scammy,” said Rastogi, whose firm represented cryptocurrency exchanges during the supreme court case that challenged the central bank’s 2018 ruling. “But in imposing a blanket ban, India would be out of sync with important global tech and business developments in blockchain.”

Popularity in India

Virtual currencies are attractive to Indians. While the government does not keep estimates of how many people trade cryptocurrencies, media reports have suggested that the country may hold as many as 20 million crypto investors, citing industry experts.

This year, at least two crypto exchanges have achieved unicorn status — a term used for startups valued at over a billion dollars — with funding from heavyweight investors such as Andreessen Horowitz and Coinbase Ventures. These platforms have also roped in some of Bollywood’s biggest actors to promote bitcoin in TV and newspaper ads.

Some crypto experts do acknowledge that regulation is needed in India — it’s just about striking the right balance.

“Don’t panic,” tweeted Nischal Shetty, the founder of cryptocurrency platform WazirX, after the new bill was announced. “All of us want regulation. We’ve been pushing for it from the last 1,000+ days.”

“We need to have faith in our law makers. There will be discussions and deliberations.” he added. “Ultimately, innovation will win.”

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