Eight years after the Reserve Bank of India issued its first advisory warning to holders of virtual currencies about potential financial and security risks, and two years after it drafted a bill to ban cryptocurrencies, the government is likely to introduce legislation. ready for who, upon passing, Officially ban such currencies, Its concern appears to be the risks associated with cryptocurrencies, including their potential use to finance money-laundering and illegal activities. The risks that investors and consumers face in dealing with these so-called currencies, given that they are neither a ‘store of value nor a medium of exchange’, and also the looming threat to financial stability are important factors. Prime Minister Narendra Modi said in a video address to the Sydney Dialogue earlier this month: “It is important that all democratic countries work together on this. [cryptocurrency] And make sure it doesn’t fall into the wrong hands.” Despite the deep unease of the Center and RBI with cryptocurrencies, there has been a boom in investment in virtual currencies, especially after the RBI notification by the Supreme Court last year to financial institutions. was barred from facilitating customer transactions related to virtual currencies. Industry estimates now have approximately 15 million investors in India with cryptocurrency holdings of approximately ₹40,000 crore, and advertising trends to brands associated with investing in virtual currencies. Promote ads show up fast.
It is beyond doubt that the ground has changed since an inter-ministerial committee set up to study issues related to virtual currencies first proposed the ban in 2019. That panel’s report vehemently claimed that “no country around the world considers virtual currencies as legal tender” in a situation where El Salvador – believed to be a small and heavily indebted nation – earlier this year – After officially announcing ‘Bitcoin’ as legal tender, much has changed in the adoption of private virtual currencies around the world. The pandemic has pushed for global adoption of all things and investments in the technologies that enable cryptocurrencies, including blockchain, appear to be no different. Canada, Japan and Thailand allow the use of virtual currencies as a method of payment, with some jurisdictions regulating them as a digital asset, and others as a commodity. Canada and the US closely monitor virtual currency activity to ensure that they do not violate laws on financial crimes, as well as earn tax revenue on prior transactions. All things granted, India should avoid the temptation to join China in banning virtual currencies and instead aim to strictly regulate its trade and generate revenue through monitored exchanges. Simultaneously, it should accelerate the pilot of RBI’s central bank digital currency to offer an alternative to cryptocurrencies.
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