The Government of India is considering launching Crypto tokens for financial transactions in the country, even as the existing ban on cryptocurrency is likely to continue. “Crypto token operate in a closed system and doesn’t impact the country’s monetary policy unlike cryptocurrency, which interferes with the money supply situation. Many governments in the world are considering using crypto tokens,” said Alok Mittal of Digital Lender’s Association of India (DLAI) president Alok Mittal.
Sources familiar with the matter told the news outlet that a committee has been set up by the finance ministry, under the chairmanship of the Department of economic affairs (DEA) secretary, and is reportedly working on a set of regulations and roadmap to allow certain crypto assets to be used in India. Once the draft regulations are ready and legally vetted, it will be tabled before the Parliament.
DEA secretary Subhash Chandra Garg, who is heading the committee, is quoted by DNA as saying: “The committee is studying the possibility of using cryptocurrencies or crypto technology (distributed ledger technology) for financial transactions and also what kind of regulations are needed for that…[while] the currency is totally banned, the committee is discussing its other uses and how it can be mainstreamed in India.”
Moreover, DNA India explained that unlike cryptocurrency, blockchain-based Crypto tokens are a “representation of money” and “can’t be used in place of Fiat money”
“The committee is examining if crypto tokens can be used to replace smart cards such as metro cards in the public sector to start with. Similarly, in the private sector, it can be used in loyalty programmes such as air miles where its use is limited to buying the next ticket and can’t be converted into money,” said a senior official in the ministry.
India’s stance on crypto
The Reserve Bank of India (RBI) had in April directed all the banks to stop dealing with individuals and businesses dealing in virtual currencies from July 5.
“The banking regulator has come out with regulations. It has debarred the banks from dealing with anybody or any aspect of cryptocurrencies. We don’t believe the cryptocurrencies to be currencies at all. We have issued several advisories for people to not deal with it. Because it is risky, it’s a Ponzi kind of scheme. Therefore, cryptocurrencies are banned in this country,” said Garg.
A senior official explained that users will need to pay physical money to buy a crypto token, which could be stored as a code in mobile phones. Crypto tokens are easy to implement from a technology and regulatory point of view, unlike cryptocurrencies, the official added.
A panel set up in December 2017 under the secretary in the department of economic affairs Subhash Chandra Garg to suggest regulations on cryptocurrencies was expected to submit its proposal by July. However, that looks difficult now according to a senior government official privy to the panel’s discussion.
Why hasn’t crypto caught on in India?
While digital currencies are set to be the future of financial payments due to their relative ease in cross-border transactions, their imminent lack of regulation has led to misuse of the currently available cryptocurrencies. Besides, extremely volatile movements have made them unsuitable as a store of value too. Thus, the RBI and other central banks have been coming down hard on the usage of these currencies.
The Cryptocurrency community in India also had to battle an onslaught of crimes and scams which has tainted the public perception of Cryptocurrencies. The most prominent scam began unraveling in 2017 after Amith Bhardwaj, founder of Cryptocurrency firm Gainbitcoin was accused by investors of frauds amounting to $300million. This case also gained prominent media attention due to the involvement of celebrities including British businessman Raj Kundra.
A significant number of local exchanges have either closed shop or partly ceased their operation already : BTCXIndia and ETHEXIndia were the first victims who chose to shut down back in March when the RBI ban hadn’t been announced yet. BTCXIndia cited the “discouraging cryptocurrency trading” of the Indian Government as the primary reason for closure at the time.
“This is a difficult subject, involving technology which is changing every now and then. That’s why it is taking some time,” Garg said. The Inter-Ministerial Committee (IMC), comprising of members from RBI, Sebi and IT ministry, was scheduled to give its report in July. “As soon as we are able to complete our work we will be to come out with it. It is not advisable to give a timeline,” he said.
The future of Indian Finance
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling [virtual currencies],” the bank said in a statement. Those that already provide cryptocurrency services will need to end the relationships within a specified time, which the bank said will be announced later.
The lack of proper regulation of Cryptocurrency exchanges by SEBI or any other regulator is sorely felt. It’s unclear if sufficient capital is available to guarantee the trades on these platforms, or whether the promoters have the requisite qualification and governance track record if the processes followed are aboveboard. This can result in huge losses to investors, creating a problem similar to the NSEL scam with no one to take the blame for it.
SEBI has to ensure investor protection for the market to completely embrace crypto assets. However, there appears to be genuine interest in crypto assets and their trading. Banning or actively discouraging this will only lead to stunted growth which will create problems in the future. Allowing these assets to be traded in the public NSE and BSE will make it easier to track and also transparent. Cryptocurrencies are entering their crucial stage of growth and trying to discourage their adoption by outright curbing their distribution might prove to be a costly move for the future of Indian finance. However, with this move, it seems like India is finally seeing the light and is taking baby steps in the right direction.