Crypto lobbies push hard for recognition as draft bill heads to Cabinet

Lobbies pitching for crypto products like Bitcoin are pushing hard for recognition of these products even as the Union Cabinet is scheduled to give final shape to the draft of the Cryptocurrency and Regulation of Official Digital Currency Bill of 2021, for introduction in the ongoing winter session of Parliament.

As the RBI has come down strongly against cryptos, those favouring these products are trying to avert an outright ban by the Union Government. Cryptos should be recognized as an asset class and investment in these products should be legally permitted, pro-crypto lobbies are pushing hard with top decision-makers in the Narendra Modi Government.

According to sources in the Ministry of Finance, the Reserve Bank of India has emphasized that all crypto products should be shunned. Emphasizing that the Government should make it clear that cryptos are illegal, the apex bank has called for early launch of India’s own digital currency.

The “no go” zone prescribed by the RBI means that unregulated products like Bitcoin cannot be allowed even as investment and pro-crypto lobbies are trying their best to stall the apex bank’s axe.

Finance Ministry officials reckon that the next couple of stages will be critical for the future of cryptos in India. The legislation proposed by the Government has to go through Parliament where law-makers will have a say; and then the scene will shift to Mumbai where the Reserve Bank of India is headquartered.

Having made a strong pitch before the Parliamentary Standing Committee on Finance, those running Crypto exchanges are determined to lobby against any ban on these fancy instruments coveted by those, especially youngsters, looking for quick profits.

Also read: Crypto Bill on the anvil indicates India’s changing stance on cryptocurrencies

Shutting the door on cryptocurrencies would leave investors, estimated to be in lakhs, in the lurch, was their main pitch before the Standing Committee headed by Jayant Sinha who has served as Minister of State in the Finance Ministry.

The other argument from them was that blockchain technology, that works behind Cryptocurrencies, could be a useful platform to expand the digital economy.

Veto by Shaktikantha Das

“Reserve Bank of India Governor Shaktikanta Das has vetoed all pleas of the lobbies for letting cryptocurrencies in,” a senior official of the Finance Ministry said. Any amount of regulation over cryptocurrencies like Bitcoin, Dogecoin, Ethereum and Binance, will not work due to factors that are outside the control of the Indian Government, the apex bank has emphasized.

The Governor was clear that there was no question of providing legitimacy or regulating these cryptos, as they are neither currencies nor controlled by any sovereign entity.

“How can India regulate transactions that are taking place outside India and are not controlled by India or any other sovereign government was the question from the apex bank?” the official explained.

The Union Government acknowledged these important aspects and moved on to speed up work on a new legislation that takes into account these concerns. RBI’s concern about the impact on inflation and massive speculation in Cryptocurrencies affecting stability of the rupee have also been taken on board.

No preview from Nirmala Sitharaman

When a volley of questions over cryptos were directed at her in Parliament during the first week of the winter session, Finance Minister Nirmala Sitharaman skillfully evaded any hint on the Union Government’s stand.

“Since the draft bill is yet to be cleared by the Union Cabinet, the issue is confidential. Details will be revealed only when the bill is introduced in Parliament,” Finance Ministry officials said.

The Government is preparing for a detailed discussion in both Houses of Parliament, as members cutting across the political spectrum are curious about cryptos and are preparing to register the stand of the political parties they belong to.

Money laundering, terror financing, evasion of forex rules, havala and non-compliance with tax regulations were some of the risks flagged by the RBI, and the Union Government has studied the situation in detail. These instruments could be used to fund drug trade, human trafficking, and arms smuggling as cross-border transactions will be unhindered, the apex bank has stressed.

“Financial stability of countries, including India, face a threat due to unregulated cryptocurrencies and macro-economic stability could be at stake,” Das stressed during consultations. This, the official from the Finance Ministry said, tilted the scales in favour of a red signal for cryptocurrencies.

No government can overlook these concerns as they concern national security aspects. Protecting investors from unscrupulous operators and hackers is another major concern occupying the minds of decision-makers.

Sui Generis Digital Currency

On the fear of missing out (FOMO) benefits of blockchain technology, that was being cited to push cryptocurrencies, the RBI mooted India’s own digital currency as the sure shot solution.

A digital currency, launched by the Government of India and regulated by the Reserve Bank of India, will safeguard against misuse while tapping emerging opportunities, was the case put forward by the RBI. Those who have taken a fancy to digital currency can invest in India’s own CBDC (Central Bank Digital Currency) and use it on modern digital platforms, the apex bank emphasized.

While the Union Government has concurred with this view, it is also thinking of ways to utilize blockchain technology that is being touted by the pro-Crypto groups as an innovation that India might miss out.

In 2018, RBI had directed banks not to deal with cryptocurrency exchanges, but that order was stuck down by the Supreme Court. Finance Ministry insiders point out that the Union Government mooted a legislation to ban Cryptocurrencies in 2019, but the move did not go through.

At that time, punishment up to 10 years in jail was proposed for those dealing in these instruments, and it was stated that investors should get out of crytpocurrencies. There are fears that attempts would be made now to derail the proposed ban on these instruments.

Those backing crytpocurrencies are claiming that Indian investment worth billions of dollars would be wiped out and lakhs of investors would suffer losses.

The Standing Committee on Finance was also told about El Salvador adopting crypto as legal tenor, several governments including Singapore acknowledging crytpocurrencies as securities and Tesla announcing that it would accept Bitcoin payments.

Loss of jobs emerging from crypto exchanges that have been growing rapidly during the post-COVID era, with sitting-at-home customers joining the bandwagon, is another concern flagged by those batting for cryptocurrencies.

China’s digital currency 

However, those opposing cryptocurrencies have pointed out that China has banned these instruments and Beijing is also planning to launch its own digital currency.

Behind the back of sovereign governments, trading in cryptocurrencies has grown into a business estimated to be trillions of dollars. Gullible investors are being lured with false promises of super profits and ultimately small investors will lose out, it has been argued.

There are thousands of crypto-products that are being traded across the world and most of these are bound to go bust sooner than later. All the transactions by Indian investors are in the grey market and this investment is at risk due to absence of any regulation. More investors should not fall prey to the risky lure of these instruments, it is felt.

Also read: Cryptocurrency to stay or not? Cabinet to take big decision soon

The Cryptocurrency Bill is among the 26 bills listed by the Government for the winter session of Parliament, and the list includes a bill to repeal the three controversial farm laws.

Whether the month-long session scheduled to end on December 23 will see the bill getting Parliament approval, is being keenly watched. It is also possible that the bill may be referred to a select committee of Parliament for detailed analysis.

Under such circumstances, whether cryptocurrencies will be completely banned or some room will be left in the ‘exemptions’ expected in the bill has become a trillion-dollar question.