Chris Dinga, Payments Analyst at GlobalData, a leading data and analytics company, offers his view:
“The debate in India around cryptocurrency regulation has been a choppy one. The lack of steady agreement has enabled the cryptocurrency sector to operate for many years unregulated, and its popularity with investors is on the rise. As of 2021, an estimated 15 million people have bought into crypto in the country, totalling to a value around $6.6 billion.
“The latest bill’s proposed framework to make any non-government-issued cryptocurrencies illegal would help prevent the accumulation of funds into what is a highly volatile, unregulated market. The decentralized nature of crypto technology means the more people invest, the greater the government’s control of the economy is challenged. With $6.6 billion already in the crypto pot, the last thing the government wants is more accumulating.
“The bill’s other proposition to legalize central bank digital currencies (CBDCs)* is likely motivated by the government’s decision to launch a pilot test of its own CBDC in early 2022. This digital currency will enable the Reserve Bank of India (RBI) to simplify Indians’ access to funds - in particular those who live in remote areas and don’t have access to bank accounts. According to GlobalData figures, 85% of Indians own a mobile phone, so the launch of a digital wallet giving access to digital currency would be an effective approach. Unlike cryptocurrency, the government’s digital currency will allow it to monitor transactions and identify illicit activity such as tax evasion and financial crimes.
“However, the bill is causing some confusion as it does not explicitly state which cryptocurrencies will be exempt from the ban. Blockchain networks such as Ethereum and Cardano may indeed benefit from the exemption, as they can be used to develop solutions such as smart contracts and decentralized apps (DApps). On the other hand, cryptocurrencies such as Dogecoin and Shiba Inu - that do not offer any value beyond speculation - could see their status revoked from trading platforms in India.
“While the ban is likely to impact cryptocurrency exchange platforms based in India, there is no guarantee that it will stop people from trading or that they will adopt the government-issued digital currencies. Peer-to-peer cryptocurrency platforms are harder for the government to monitor, as they offer a certain degree of anonymity to users. The government may find out that banning cryptocurrencies may not be enough to prohibit people from using them.”
* A digital currency that is issued and controlled by the central bank directly to consumers through a mobile wallet. Consumers will not need a bank account to access their funds and make payments
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