The Indian Parliament has proposed the “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019″ act that would make it unlawful for any person to buy, transfer, issue and sell bitcoins in India. The law proposes a 10-year sentence for those who indulge in any of the above mentioned acts. The news was reported by a local media outlet Zee News India.
According to the new law, anyone found in possession of bitcoin will be jailed for up to 10 years. The law makes it a non-bailable offense to hold any cryptocurrency. The draft law has been proposed to combat money laundering in the country as well as protect the Indian rupee from further devaluation.
Many government departments including the Income Tax Department and the Central Board of Indirect Taxes and Customs have shown their concerns to the government about the use of these currencies in money laundering and have already endorsed the bill. The strict law would be able to control the money laundering problem the country has been facing. India is not against the idea of cryptocurrency, the country aims to launch its cryptocurrency backed by the Indian rupee. An Official of the Economic Affairs Secretariat said in this regard:
A decision on the launch of Digital Rupee would be taken after consulting the Reserve Bank of India (RBI).
The details of the law are still not clear as of yet, and the government departments have not yet released the information. The details that have been received so far have been made public by the Economic Times in an article that talked about the proposed law, and by a Bloomberg article that mentioned the proposed jail term.
Indian lawyer Varun Sethi, who specializes in blockchain, filed a Right to Information (RTI) request to know more about the ban; however, the Reserve Bank of India (RBI) turned the RTI down saying they have no knowledge of such a proposed ban. Many crypto startups in India are in a limbo as users have no way through which they can exchange their bitcoins currently and according to an investor, withdrawals are made through people in crypto legal states. One of the users said:
So, as of now, if we want to get a withdrawal, we need to get it from someone in the US or other countries.
India’s Cold War with Crypto
The anti-crypto charge is being led by the Economic Affairs Secretary of India, Mr Subhash Chandra Garg, a known crypto dissident. In his tweets, Subhash has called bitcoin a “Ponzi scheme” while saying that the currency has no real value. He has been leading the draft committee since 2017 and by April 2018 it was clear that a potential ban of cryptocurrency was inevitable.
Cryptocurrencies like bitcoins are neither currency nor coin. Not legal tender in India at all. Trade in these currencies has assumed character of classical Ponzi schemes. Limited supply and uninformed demand makes every new investor assume higher risk. No underlying real value.
— Subhash Chandra Garg (@SecretaryDEA) December 30, 2017
In 2017, the Indian tax department raided dozens of cryptocurrency exchanges on suspicions of involvement in money laundering activities. The other concern is the effect on the Indian rupee as the government is worried that the rupee may destabilize if the trend catches on. A government official in an interview to a local bitcoin magazine said:
“If Bitcoin and other digital currencies are going to be allowed to be used for payments, then whether it will end up destabilizing the fiat currency is a significant concern for them. The overall impact on the financial ecosystem that it is likely to have is still unclear, and it has been a challenge to convince them on this particular point.”
In the past, the government has labeled bitcoin as a get rich quick scheme, targeted at novice investors and the government has been discouraging its people from investing in the cryptocurrency. The Board of Investment has already shot down crypto on numerous occasions and has taken up a negative stance against the currency. According to a report:
“The ministry of corporate affairs has in its feedback to the department of economic affairs pointed out the sale, purchase and issuance of cryptocurrencies such as Bitcoin, Etherium and Cashcoin, etc. are being done by individuals and companies on false inducements of massive returns.”
The 2016 Demonetization
In 2016, the Indian government launched a demonetization scheme to combat money laundering and currency counterfeiting. The 1000- and 500-rupee banknotes were withdrawn within a fortnight, and new bills were introduced. However, the critics labeled the move as a power grab by Prime Minister Narendra Modi. According to them, the move was ineffective as most of the money hoarders laundered the money using crypto and forex.
India accounts for less than 2% of the total cryptocurrency market globally, even though having 1/8th of the world’s population. A ban may not affect the global crypto economy. However, the Indian investors are sure to face considerable losses.