C.P. Krishnan (சி.பி.கிருஷ்ணன்)
Cryptocurrency has been a hot topic of discussion in our country for quite a few years. Those who support cryptocurrency argue that the transactions of this virtual currency are done through blockchain technology and are therefore well protected. They say that it is very easy to invest; one can start investing even with Rs.100 and is a safe investment. The first decentralized cryptocurrency was created presumably by pseudonymous developer Satoshi Nakamoto in 2009. There are about 1.5 crores to 2 crores cryptocurrency investors in India, with total holdings of about Rs.40000 crores, as per industry estimates. But the actual figure of investing population in cryptocurrency and the actual holdings in our country are not authentically known to anyone.
There are no written rules to control cryptocurrency. Everything related to this is opaque and not subject to any audit of whatever nature. There are many forms of crypto currency and bitcoin is one of the most popular forms. Cryptocurrency is the currency of the Internet and decentralized digital money prevalent worldwide. Unlike traditional currencies such as dollars, cryptocurrencies are issued and managed without any central authority whatsoever. There is no Government, company, or bank in charge of cryptocurrency.
Bitcoin enables illegal transactions and prone to fraud
On 11th July 2018, Joseph Stiglitz, winner of the Nobel Prize for economic studies and professor at Columbia University suggested that bitcoin would fail after governments begin to fight back against money laundering and other fraudulent practices that criminals perform with the aid of cryptocurrency.” (Investopedia)
Many renowned economists all over the world have opined against this virtual currency and warned Governments with dire consequences. They argue that this would facilitate hawala transactions, accumulation of black money and would enable illegal transactions, drug funding, human trafficking, terrorist activities, illegal weapon sales etc. Instances of fraud and hacking are also common with regard to cryptocurrency. For example, an Ernst & Young study found that around $400 million of the total $3.7 billion funds raised in cryptocurrency offerings have been stolen.
Supreme Court strikes down RBI Circular
Reserve Bank of India (RBI) prohibited on dealing in cryptocurrency otherwise called Virtual Currency on 6th April 2018. On 4th March 2020, the Supreme Court (SC) struck down the RBI circular dt.6th April 2018 on the grounds of proportionality.
In 2018, there was a draft bill to regulate Virtual Currencies. In 2019 another bill was drafted by Government of India to ban the VCs.
In November 2021, the Union Government drafted another bill namely “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.” The bill is intended to create an official digital currency to be issued by the Reserve Bank of India. The Bill also sought to prohibit all private cryptocurrencies in India. But the bill was not introduced in the Parliament during the winter session.
Budget Announcement by FM
On 1st Feb 2022, during the budget speech, the Union Finance Minister has made two statements regarding cryptocurrency:
1. “…I propose to provide that any income from transfer of any virtual digital asset shall be taxed at the rate of 30 per cent.”
2. “…It is, therefore, proposed to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.”
Cryptocurrency legal or illegal
This gives rise to many questions, the basic one being whether cryptocurrency is legal or illegal. While RBI’s circular prohibiting dealing on cryptocurrency has been struck down by Supreme Court, the Government/RBI has not come out, till date, with any concrete proposal to deal with this. The Government/RBI stand on Virtual Currencies has been the one with a lot of confusions and contradictions.
The Union Government has no official data on the number of private cryptocurrency exchanges operating in India and the number of investors linked to them. This has been confirmed by the Union Finance Minister in a written reply tabled in Rajya Sabha on July 27th, 2021. (Financial Express dated 28th July 2021)
In this background, the Union Government proposes 30% tax on income from transfer of any virtual digital asset. Then will it not remain simply on paper when the Government has no information regarding cryptocurrency exchanges and number of investors in India? Again will it not legitimize the Virtual Currency which the Government intended to prohibit the same till the last winter session?
The Union Government further proposes to introduce Digital Rupee to be issued by RBI using the same blockchain technology which the private players use. It is seen that private virtual currency has been used for all illegal activities and is prone to fraud. Then how will “the Government promoting Digital Rupee” be a safe currency?
China banned cryptocurrency
In September 2021 China banned cryptocurrency. Alternately People’s Bank of China issued virtual currency by name digital yuan. In addition to China, eight other countries have absolute bans on these digital currencies. Algeria, Bangladesh, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia have all chosen to unilaterally ban exchanges and services surrounding cryptocurrencies.
RBI Dy.Governor calls for outright ban
Reserve Bank of India Deputy Governor T Rabi Shankar called for an outright ban on cryptocurrencies in the country. “Cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may be even worse,” T. Rabi Sankar said while addressing an event organized by Indian Banks Association on 14th February. “Total crimes using cryptocurrencies in 2021 was estimated to be $14 billion”, Rabi Shankar said citing Wall Street Journal dated 6th January 2022.
The Union Government is accountable to the people of India. The activities of the BJP Government in dealing with Virtual Currencies have not raised any hope in the minds of the people. It is time for the Union Government to take a firm stand to ban all the private Virtual Currencies, instead of levying tax and introduce digital rupee through RBI using a safer and time tested technology.