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Synopsis: No legal classification of cryptocurrency in India should not be the reason for its ban. There are some international examples, from where India can adopt some ways to deal with Cryptocurrencies.
El Salvador became the first country in the world to adopt bitcoin as legal tender. This shows the rising global trend of accepting cryptocurrencies with all their associated risks. Almost all countries are permitting the growth of the cryptocurrency market subject to certain safeguards.
However, India is still thinking about whether to prohibit or regulate cryptocurrencies. Globally, there is an inclination towards regulations that recognizes the freedom of choice of people for using a medium of exchange other than a central bank-backed fiat currency.
How has India responded to the crypto business so far?
The cryptocurrency market in India has advanced in a mainly unrestrictive regulatory space since the first recorded cryptocurrency transaction in 2010.
- Firstly, between 2013 and 2018, the government’s response to the rise of virtual currencies was cautionary. It alerted users to the potential risks posed by cryptocurrency transactions. These concerns arose from its potential use in criminal activities such as money laundering, terrorist financing, and tax evasion.
- Secondly, in April 2018, RBI effectively banned cryptocurrency trading. However, the Supreme Court in 2020 overturned this ban.
- The court said that RBI can take other regulatory measures instead of an outright ban through which risks associated with cryptocurrency trading can be curbed.
- Now, the draft Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 has been introduced. The draft Bill plans to criminalize all private cryptocurrencies while also laying down the regulatory framework for an RBI-backed digital currency.
Minister of State for Finance stated in the Parliament that regulatory bodies do not have a legal framework to directly regulate private cryptocurrencies. Then, how these currencies should be regulated?
What are the lessons that India could learn from other countries?
India can take a few lessons from the U.K., Singapore, and the U.S. UK. They have categorized cryptocurrency as property. This has made the way for cryptocurrencies to be included within a regulated legal framework in the country’s economy.
- The U.K. wants to regulate the working of crypto-businesses while still imposing some restrictions to protect the interests of investors.
- There is no precise legal classification of cryptocurrency in Singapore, but the flexibility of cryptocurrency transactions to the contract law framework of the country has been resolutely recognised and there is now a legal framework for cryptocurrency trading.
- In the U.S., the authorities are taking an open approach, It led to the taxing and regulation of trade-in cryptocurrency.
- These approaches are country-specific and cannot be directly implemented in India. However, the global regulatory attitude towards cryptocurrencies gives valuable insights into the other ways to achieve balanced regulation.
- In India, the absence of an existing legal classification of cryptocurrency should not be the basis to ban its use. The government should use this as an opportunity to allow private individuals the freedom to harness a powerful new technology with appropriate regulatory standards.
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