A government-appointed committee, headed by Finance and Economic Affairs Secretary Subhash Chandra Garg, has recommended the banning of all private cryptocurrencies. It has suggested that carrying out any activity connected with cryptocurrencies in India can result in a jail term of up to 10 years and/or penalty up to ₹50 crore.

However, it suggested having an ‘open mind’ regarding introduction of an official digital currency. As of now, India has a fiat currency, the rupee, available in real paper currency notes and coins. A fiat currency refers to a legal tender, which is backed by a specific government through a law. It is not backed by physical financial standard such as gold or silver.

The inter-ministerial committee noted with serious concern the mushrooming of cryptocurrencies that are issued abroad, with numerous people in India investing in them. Such cryptocurrencies have been created by non-sovereigns and are entirely private enterprises. There is no underlying intrinsic value of these private cryptocurrencies. These private cryptocurrencies lack all the attributes of a currency.

Market cap

A cryptocurrency is a subset of virtual currencies and is decentralised, and protected by cryptography. Other than Bitcoin, several other cryptocurrencies have emerged, including Ethereum, Ripple and Cardano. As of date, there are around 2,116 cryptocurrencies, with a market capitalisation of $119.46 billion.

The committee also said that there is no fixed nominal value of these private cryptocurrencies. It means they neither act as a store of value, nor are they a medium of exchange. Since their inception, cryptos have demonstrated extreme fluctuation in prices. Therefore, the committee is of the clear view that private cryptocurrencies should not be allowed.

A review of global best practices also shows that private cryptocurrencies have not been recognised as ‘legal tender’ in any jurisdiction. Accordingly, the committee recommends that “all private cryptocurrencies, except any cryptocurrency issued by the State, be banned in India”.

The committee has also prepared a draft law which says that no person shall directly or indirectly use cryptocurrency as a medium of exchange and/or a store of value and/or a unit of account. It also proposes prohibition on the use of cryptocurrency for activities such as a payment system, buy or sell or store, provide cryptocurrency-related services to consumers or investors, including registering, trading, settling, clearing or other services, trade cryptocurrency with Indian currency or any foreign currency, issue cryptocurrency-related financial products, a basis of credit, a means of raising funds, and/or as a means for investment.

Related Topics
comment COMMENT NOW