Indian companies and individuals are unlikely to be allowed to pull a Tesla and stash excess cash in cryptocurrencies that have been on an eye-popping surge if a new bill proposed by the government is cleared by parliament.
A draft bill expected to be introduced in this session of parliament proposes a complete ban on all private cryptocurrencies – decentralised digital money that is prized for being untraceable and a buoyant valuation, sources have told NDTV.
The bill will also lay the groundwork for an official digital currency – which are different because they can be regulated by a country’s central bank – and its ties to the Reserve Bank of India or RBI.
Exchanges, people, traders and other financial systems’ participants will not be allowed to deal with cryptocurrencies and penalties have been proposed for any violation by individuals as well as corporate bodies.
The decision comes after an inter-ministerial committee including the RBI felt that private cryptocurrencies will pose a threat to the financial stability of the country.
Both the government and RBI have been warning about virtual currencies and have advised all banks and financial establishments not to deal with them.
Nearly 7 million Indians hold cryptocurrencies worth over $1 billion and there has been an over 700 per cent increase in the last year, according to official estimates.
In mid-2019, an Indian government panel recommended banning all private cryptocurrencies, with a jail term of up to 10 years and heavy fines for anyone dealing in digital currencies.
The RBI had in April 2018 ordered financial institutions to break off all ties with individuals or businesses dealing in virtual currency such as bitcoin within three months.
However, in March 2020, the Supreme Court allowed banks to handle cryptocurrency transactions from exchanges and traders, overturning a central bank ban had that dealt the thriving industry a major blow.
Governments around the world have been looking into ways to regulate cryptocurrencies but no major economy has taken the drastic step of placing a blanket ban on owning them, even though concern has been raised about the misuse of consumer data and its possible impact on the financial system.
India’s proposed bill comes days after carmaker Tesla, led by US billionaire Elon Musk, announced a $1.5 billion investment in bitcoin and plans to accept the cryptocurrency from customers buying its electric vehicles, pushing the digital money to an all-time high.
The step was seen as the latest in the mainstreaming of the cryptocurrency whose value has risen by about 50 per cent this year, but sceptics say it is still highly volatile and regulators warn it is vulnerable to illicit use.