Criminalised Cryptocurrencies: India plans to ban digital currencies
March 31, 2021
3 min read
What's going on here?
A senior Indian government official informed Reuters about plans to propose a law that would criminalise the possession and use of cryptocurrencies.
What does this mean?
The proposed bill would make it illegal to mine, possess, trade or transfer digital assets. Current holders would not be penalised immediately but would have up to six months to liquidate their digital assets. It has not yet been confirmed whether penalties would include prison sentences.
The proposed bill is coherent with a government agenda from January which looked to ban private cryptocurrencies (Bitcoin or Ether, for example), and to encourage the central bank’s plans to develop an official cryptocurrency. An official cryptocurrency would be strictly regulated, in the hope of creating a currency less volatile than the private cryptocurrencies currently in circulation.
Prime Minister Narendra Modi’s government has a firm majority in the Indian Parliament, giving officials confidence that this bill will become law. If it does, India will be the first major economy to criminalise possession of cryptocurrencies, surpassing China who has banned mining and trading but has not yet penalised possession.
What's the big picture effect?
The proposed ban is likely to be met with great resentment and resistance. Although there are no official figures for possession and use of digital currencies in India, industry experts believe that there are over 8m investors, whose investments could add up to 100bn rupees (roughly £1bn). During the past year, coronavirus lockdowns have given people more time to spend online and fewer opportunities to earn money, driving engagement with digital currencies. On Saturday 13 March Bitcoin, the leading digital currency was valued at £43,000, a record high. Not only would the proposed ban exclude investors in India from continuing to capitalise on this high value, but there are also fears that the ban might cause the value of cryptocurrencies to decrease. In fact, after the news of the proposed bill, Bitcoin’s value dipped to £39,500.
There are further potential impacts if this bill is passed. After the Reserve Bank of India placed serious restrictions on the use of cryptocurrencies in India in April 2018, crypto exchanges suffered severe damages to their businesses: their trading volumes fell by 99% and within 4 months 95% of jobs disappeared. In March 2020 the Supreme Court overturned the RBI’s ban and the crypto market surged, but this new ban could bring back all the damage seen in 2018 and more.
Furthermore, following a ban like this, blockchain experts are likely to move away from India. As a result, the country’s blockchain innovation, currently employed in areas such as governance, data economy and energy, is likely to subside.
However, it is improbable that all cryptocurrency activity in India would cease, especially since the value of currencies like Bitcoin is currently so high. Instead, trading is likely to move “underground”, a spokesperson for the IAMI told the Independent. This could increase the likelihood that digital currencies will be used for illegal means.
Cryptocurrencies have been the subject of doubt and criticism ever since they first emerged but their lucrative potential continues to attract investors. Could this proposed bill be the start of a global movement away from volatile cryptocurrencies, or are India excluding itself from a crypto market that will continue to expand?
Report written by Elizabeth Ambrose
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