In February, prior to the commencement of the Budget Session of Parliament 2021, the government announced that it would introduce a new piece of legislation banning crypto-currency trading, mining and investments in India. At the same time, the legislation will provide powers to the Reserve Bank of India (RBI) to build and launch a Central Bank-backed Digital Currency or Digital Rupee.
The announcement came as a shock to the crypto-currency community in the country as they have been operating freely for almost a year, since the Supreme Court struck down the RBI’s April 2018 circular which barred banks for dealing with crypto-currency firms. However, the Finance Minister has since clarified that the government will give investors a window to square their holdings and that it is planned a “calibrated” approach.
It is important to note that even if the government blocks the IP addresses of crypto-currency trading and investment platforms, users can access any website through Virtual Private Networks.
The government’s concerns with crypto-currencies are two-fold. The first, is that cryptocurrencies are global and sovereigns have very little control on speculative activity in these assets. The second, is that crypto-currencies can be used to finance frauds, ponzi schemes, terrorism financing and money laundering.
However, crypto-entrepreneurs say that a ban on crypto-currencies would not address these concerns. In fact, a ban would just lead to more illicit or black market activity, they said. The best way forward is to regulate the cryptocurrency exchanges, introduce crypto investments as a category within the Goods and Services Tax regime and Income Tax assessment system and encourage the blockchain and crypto industry together.
“By incorporating a measured mix of international best practices, existing domestic regulatory regimes, and some new regulations, the Indian Government can promote the use of cryptocurrency in the country. In a regulated market, crypto exchanges will play a crucial role by ensuring compliance to KYC and AML guidelines, and mitigate illicit activities in digital currencies,” the Internet and Mobile Association of India said recently in an internal white paper.
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