The Indian government has been handed a report on Cryptocurrencies by the Inter-ministerial Committee. The Indian Report recommends ban on Crypto currencies or Virtual currencies.
Throwing cold water on the crypto hopes in India, a report has been submitted to the Indian Government recommending a ban on all crypto currencies and digital money that is not backed by a central governmental authority.
The report was circulated earlier that led to speculation that a ban was imminent. The recent report confirms the rumors.
On the 2nd of November 2017, a committee was formed to study the problems and uses of crypto currencies, especially Bitcoin. The committee was made up of multiple departments of the government. The chairman was Subhash Chandra Garg, Secretary, Department of Economic Affairs, Ministry of Finance. Members included Ajay Prakash Sawhney (Secretary, Ministry of Electronics and Information Technology), Ajay Tyagi (Chairman,Securities and Exchange Board of India) and B.P. Kanungo (Deputy Governor, Reserve Bank of India). The Inter-ministerial Committee was made to “study various issues pertaining to Virtual Currencies and to propose specific actions that may be taken”.
The report has defined crypto currency as “any information or code or number or token not being part of any official digital currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchange with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”
Highlights of the Report
Reporting on the document, India Today listed out the main takeaways –
1) All the cryptocurrencies have been created by non- sovereigns and are in this sense entirely private enterprises.
2) There is no underlying intrinsic value of these cryptocurrencies back they lack all the attributes of a currency.
3) There is no fixed nominal value of these private cryptocurrencies i.e. neither act as any store of value nor they are a medium of exchange.
4) Since their inceptions, cryptocurrencies have demonstrated extreme fluctuations in their prices.
5) These cryto currencies 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.
6) A review of global practices show that the have not been recognised as a LEGAL tender in any jurisdiction.
7) Committee also recommends that all exchanges, people, traders and other financial system participants should be prohibited from dealing with cryptocurrencies.
Not all bad news
The report has been divided into two parts –
- Virtual Currencies.
The report has called for increased use of blockchain technology in the financial sector. It refers to the technology as Distributed Ledger Technologies(DLT).
Accordingly, the Committee inter alia recommends that the Department of Economic Affair stake necessary measures to facilitate use of DLT in the entire financial field after identifying its uses, and that regulators RBI, SEBI, IRDA, PFRDA and IBBI explore evolving appropriate regulations for development of DLT in their respective areas. The Committee also recommends that the use of DLT to reduce compliance costs for KYC requirements and further, that MeitY and GSTN play a major technology supportive role for exploring and building the uses of DLT for enabling trade financing by enabling the growth of trade invoicing through DLT.
The committee recommends banning Virtual currencies because they do not provide any benefit over regular fiat currency. Fiat currency is legal tender backed by a government. The committee believes the risk of misuse is extremely high which is why it should be banned. They also cite the volatility and energy use of cryptocurrencies as potentially dangerous for the economy.
The Committee recognizes that while technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system, virtual currency in and of itself does not have any of the benefits associated with a fiat currency.The concerns of the Committee are therefore narrowly focused on non-official digital currencies and not on the underlying technologies or VCs issued by governments. Further, the Committee notes that non-official virtual currencies can be used to defraud consumers, particularly unsophisticated consumers or investors. Another concern from use of non-official digital currencies is to the economy and the financial system with implications for monetary supply, particularly given their volatility and crippling use of resources including energy.
Given all these reasons, the Indian Report recommends ban on crypto currencies. Read full report here.