- The committee set up to look into the legality of cryptocurrencies and blockchain has submitted its report to the Finance Ministry and recommended that private cryptocurrencies be banned completely in India.
Committee on cryptocurrencies
- The government had constituted an Inter-Ministerial Committee in November 2017, under the Chairmanship of Economic Affairs Secretary Subhash Chandra Garg and comprising senior officials of the MEITY, SEBI and the RBI.
- The committee notes with serious concern mushrooming of cryptocurrencies almost invariably issued abroad and numerous people in India investing in these.
- The Committee, however, leaves the door open for the central bank issued cryptocurrencies, adding that it endorsed the RBI’s stance of banning any sort of interface of cryptocurrencies with the banking system in India.
- The Committee recommends that all private cryptocurrencies, except any cryptocurrency issued by the state, be banned in India.
- It endorses the stand taken by the RBI to eliminate the interface of institutions regulated by the RBI from cryptocurrencies.
- However, the report goes on to say that it would be advisable to “have an open mind” regarding the introduction of an official, government-backed cryptocurrency in India.
- But it also added that it is currently unclear what the advantages of such a currency in India would be.
Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019
- The committee has drafted a law which mandates a fine and imprisonment of up to 10 years for offences.
- The draft law says that anybody who mines, generates, holds, sells, deals in, transfers, disposes of or issues cryptocurrencies with will face a fine and/or jail time of between 1 and 10 years.
- The fine has been set at the either three times the loss or harm caused by a person, or three times the gain made by the person, whichever is higher.
Why ban cryptocurrencies?
- All the cryptocurrencies have been created by non-sovereigns.
- They do not have any intrinsic value of their own and lack any of the attributes of a currency.
- That is, they neither act as a store of value nor are they a medium of exchange in themselves.
- These cryptocurrencies cannot serve the purpose of a currency.
- The private cryptocurrencies are inconsistent with the essential functions of money/currency, hence private cryptocurrencies cannot replace fiat currencies.
More focus on the use of distributed ledger technology (DLT) and blockchain
- Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time.
- Unlike traditional databases, distributed ledgers have no central data store or administration functionality.
- While the committee has taken a strong stance against cryptocurrencies, it has highlighted the benefits of the underlying technology—the distributed ledger technology (DLT) and blockchain.
- The Committee recommends that blockchain based systems may be considered by MEITY for building a low-cost KYC system that reduces the need for duplication of KYC requirements for individuals.
- Further, the report said that DLT-based systems can be used by banks and other financial firms for loan tracking, collateral management, fraud detection, claims management in insurance etc.
- Similarly, DLT can be beneficial for removing errors and frauds in land markets if the technology is implemented for maintaining land records.
- The Committee therefore recommends that various state governments may examine the feasibility of using DLT for land-records management.