The Time is Ripe for India to Consider Cryptocurrency as Digital Cash

Rather than rolling out a total ban, India should consider making cryptocurrency digital cash.

Along with the growing cryptocurrency investments in India, the government regulations also spiraled to be very strict. Today, Bitcoin and other cryptocurrencies are not legal in the country. However, the fortunate thing is that India still opens the gate for crypto exchanges. Even though India falls behind in providing a robust regulatory framework, the country has a protected licensing process, which makes it difficult for using certain cryptocurrencies and other innovative technologies to accelerate the benefits of the digital coin. However, cryptocurrency enthusiasts opine that rather than rolling out a ban on the digital currency market and confining Indians from using it, the government should think about making cryptocurrency digital cash in the country.

Although cryptocurrency is an open market for Indian investors, the government has imposed a tax on any profitable bitcoin transactions. The Income Tax Department has also suggested taxing cryptocurrency profits. But the situation of cryptocurrency in India is as volatile as its own market price. Despite the ongoing turmoil, around 7 million Indians have already pumped in over US$1 billion into the digital currency market. Indians investing in Bitcoin and other cryptocurrencies is predicted to drastically surge over the next few months or years. Unfortunately, the Indian government is still unstable to decide on whether to allow fintech space for cryptocurrency transactions or not. However, the Reserve Bank of India, the foremost bank in the country, and the Indian government are moving forward to propose new regulations. At a time when things are still moving at a slow pace, let's take you through where India stands on rolling out new rules on cryptocurrencies and what experts predict could help the country perform better in the digital currency market.

The legality of cryptocurrency in India

Bluntly put, cryptocurrencies are not legal in India. However, Indians can still invest in the cryptocurrency market and trade them from the country. Owing to the cryptocurrencies' increasing popularity, the Indian government constituted an Inter-Ministerial Committee (IMC) in 2017 to study the state and taxation possibilities of the digital currency. The team submitted a report and flagged the positive aspect of distributed-ledger technology. They also suggested various applications, especially, in financial services, to be rolled out in order to bring more regulation to cryptocurrency. The IMC team also included the possibility of adding banks and financial firms in the validation. However, the center didn't see the cryptocurrency market positively. Despite the team's effort, the Indian government still flagged reservations around bitcoin misuse and wanted to put a blanket ban in the country.

A year later, the Reserve Bank of India has banned the usage of cryptocurrency. The RBI prohibited banks from processing transactions related to cryptocurrency, but in 2020, the Supreme Court lifted the ban. As of 2021, the Indian government is seriously reviewing an imminent ban on digital currency. Besides, the Ministry of Corporate Affairs (MCA) has made it mandatory for companies to disclose crypto trading or investments during the financial year.

What are the recent developments?

The Indian government is currently considering favoring a digital currency backed by the Reserve Bank of India. Despite its delay to take a stable decision on the legality of the cryptocurrencies, the proposed legal structure demands a lot of specifications from investors. For example, if passed, the law would have required crypto investors to declare their holdings and transactions. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which will prohibit all private cryptocurrencies and lay down the regulatory framework for the launch of an official digital currency was put on hold as the government is still discussing the matter.

How about considering cryptocurrency as digital cash?

Cryptocurrency experts claim that the Indian government has misunderstood the digital currency market. They add that there is a lack of understanding of the positive impact that powerful technology can create on the Indian economy. However, India is not alone. Many nations across the globe have expressed fear over cryptocurrency irregularities and their democratic motive. Fortunately, they can change the fate of cryptocurrency if they see it as digital cash. By acknowledging cryptocurrency as digital cash, governments can monitor their valuation and track the transfers. The Indian government can also address crypto-threats by issuing Central Bank Digital Currency (CBDC), which will be backed by the RBI. Digital cash will have legitimacy and encourage the public to purchase and trade Bitcoins.