The delay in India’s cryptocurrency and digital assets legislation is justified because of its complexity and the impact such a decision will have on investors and broader financial markets, said experts.
In its current form, the Cryptocurrency and Regulation of Official Digital Currency Bill aims to ban all cryptocurrencies as a payment method in India, barring a few private coins to promote underlying technologies, even as it allows the Reserve Bank of India to set up an official digital currency.
The Reserve Bank of India made clear its reservations and, in repeated messages, has said it was in favour of a complete ban on cryptos highlighting concerns relating to macroeconomic and financial stability from virtual currencies, the challenge of exchange management, monitoring and regulating such assets.
However, the government had previously said it aims to promote underlying technologies such as blockchain. Industry experts, too, opine that reforms to the bill with more comprehensive consultations can take India to the forefront of blockchain tech.
Finance Minister, in her budget, announced the RBI would introduce the digital rupee within the following year.
While the Central Bank Digital Currency (CBDC) and cryptocurrencies are different, experts agree they require extreme planning.
“Both require meticulous planning and fiscal-monetary policy coordination. The political economy of the digital currency is tricky, and so far, there is no internal inconsistency between the RBI and the ministry of finance on this. The deliberations are time-consuming,” Lekha Chakraborty, Professor at the National Institute of Public Finance and Policy, New Delhi.
“My hunch is India will not ban crypto. However, an informed debate on data privacy, the energy intensity of crypto transactions and its impact on monetary policy reaction function is significant, and that’s why the bill is delayed,” she added.
A few members of RBI’s central board have also sought a more nuanced view on digital assets, keeping in mind the technological developments and their broader implications on financial markets.
The government has delayed the discussion again on the bill, which has been in the works for over a year now.
The bill was listed in the budget and monsoon sessions last year. The legislation was also listed for the winter session, which ended on December 23, but was not introduced.
Instead, finance minister Nirmala Sitharaman stated that the bill’s details would be made public once the union cabinet approves it.
“Given the complexity of the crypto bill, the government’s delay on the decision is more or less justified,” said a digital asset expert on the condition of anonymity.
“The RBI’s reservation notwithstanding, the government is consulting wider experts and taking a thorough approach,” he added.
While in its current form, the draft legislation will deal a blow to its use and the non-fungible token (NFT) market in India, the centre is reportedly considering changes to the proposed bill.
Non-fungible tokens can digitally represent any asset, including virtual-only assets. Some of the examples of NFTs are digital artwork, including in-game items like avatars, digital and non-digital collectables, domain names, event tickets, and tangible assets such as real estate.
The draft had also suggested a crackdown on cryptocurrency advertisements, which authorities say mislead the public.
A private body announced disclaimers would be a must for risky crypto advertisements.
But the number of digital assets investors has surged in India; most are still hopeful and expect the final bill to provide more flexibility than a complete ban.
Investors and top cryptocurrency exchanges currently operating in India also welcomed the plans to regulate the crypto market and formally help develop underlying technologies.
“Crypto is financial innovation. Provided a reasonable regulatory framework, crypto legislation should boost investors’ confidence. The ease in transactions can strengthen entrepreneurial confidence and catalyse trade and investment,” said Ms Chakraborty.
“On February 1, in the press meet after the Budget Speech, the finance minister had clarified that cryptos are not currencies and that they are not a digital legal tender either. They are speculative assets. The Central Bank Digital Currency (CBDC) announced in the Budget is, of course, the digital legal tender. The regulatory framework is crucial to roll out digital currency/assets, and India has not yet announced any ‘radical’ framework on this. A gradual approach will be taken, and that’s why the delay,” she added.