The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is set to be introduced in Parliament’s Winter Session, which begins on November 29, and aims to “provide a conducive environment for the formation of the official digital currency to be issued by the Reserve Bank of India.”
The bill “seeks to restrict all private cryptocurrencies in India, although it provides for limited exclusions to promote cryptocurrency’s core technology and usage.”
Cryptocurrency prices on local exchanges plummeted overnight as the news surfaced, despite the fact that worldwide markets remained remarkably stable.
According to industry insiders, crypto holders are panicking and liquidating their holdings in anticipation of a ban or limitation. In India, there is presently no legislation or prohibition on cryptocurrencies. Nonetheless, governmental solutions to defining and regulating virtual currencies vary greatly among jurisdictions.
How are cryptocurrencies regulated in different countries?
Countries and authorities have taken a variety of positions on these financial assets, ranging from outright bans to allowing them to operate under certain restrictions, to permitting virtual currency trade without any restrictions.
Governments and authorities are split on whether it should be classified as a currency or an asset, and how to govern it operationally. The policy and regulatory reaction have evolved in an unusually discordant manner, with little apparent coordination across nations’ measures.
As previously noted, regulatory and legislative responses may range from full openness, as seen in El Salvador, which has authorised bitcoin as legal tender, to a comprehensive crackdown, as seen in China, which has put strict limitations on both cryptocurrencies and service providers.
Countries like India are in the middle, still working out the best method to handle cryptos after a period of policy and regulatory experimentation. While conversations continue, the United States and the European Union have been aggressive in attempting to define the regulatory mandate.
There are nations that have recognised and defined these currencies but have not issued formal laws.
While Her Majesty’s Revenue & Customs does not consider cryptocurrencies to be cash or money, it does emphasise that they have a distinct identity and hence cannot be compared to any other kind of investing activity or payment system.
Cryptocurrencies are defined and regulated differently in various states. Although the federal government does not recognise cryptocurrencies as legal money, state definitions acknowledge the decentralised character of virtual currencies.
Virtual currency is defined as follows under the Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations:
(a) a digital representation of value that can be used for payment or investment purposes but is not a fiat currency and can easily be exchanged for funds; or another virtual currency that can easily be exchanged for funds; or
(b) a cryptographic system’s private key that allows a person or organisation to access the digital representation of value mentioned in paragraph (a).
According to research published in June by the Thomson Reuters Institute, Canada was one of the early adopters of cryptocurrencies, and the Canada Revenue Agency (CRA) classifies cryptocurrency as a commodity for the purposes of the country’s Income Tax Act.
Virtual currencies are included in the definition of financial assets under the Supervision of Financial Services Law. The Israeli Securities Authority has declared that bitcoin is a security, while the Israel Tax Authority has classified cryptocurrency as an asset and imposed a 25% capital gains tax.
Virtual currencies are classified as “units of account” and hence “financial instruments” by the Financial Supervisory Authority. Bitcoin is classified as a “crypto token” by the Bundesbank since it does not perform the functions of a currency. On the other hand, citizens and legal companies may acquire and sell cryptoassets if they do so via exchanges and custodians approved by the German Federal Financial Supervisory Authority.
According to the Thomson Reuters Institute research, digital asset enterprises must apply for a licence, check for unfair trading practises, and are deemed “financial institutions” for anti-money laundering reasons. Siam Commercial Bank, Thailand’s oldest institution, revealed earlier this month that it would buy a 51% share in local cryptocurrency market Bitkub Online.
While the majority of these countries do not recognise cryptocurrencies as legal tender, they do recognise the value they represent, as well as their roles as a medium of exchange, unit of account, or store of value (any asset that would normally retain purchasing power in the future).
Several other nations, including India, have taken steps to develop a digital currency backed by their central bank.
What is the RBI’s Central Bank Digital Currency (CBDC) and how does it work?
The Reserve Bank of India (RBI) wants to establish the CBDC, a digital version of fiat money that can be transacted using blockchain-backed wallets and is controlled by the RBI. CBDCs are distinct from decentralised virtual currencies and crypto assets, which are not issued by the government and lack the ‘legal tender‘ status announced by the government, despite the fact that the idea was directly inspired by Bitcoin.
CBDCs allow users to perform domestic and cross-border transactions without the involvement of a third party or bank. Given the fact that other nations are conducting pilot projects in this area, it is critical for India to establish its own CBDC, allowing the rupee to compete in international financial markets.
CBDC is a digital or virtual currency, but it is not analogous to the private virtual currencies that have sprung up in recent years. Private virtual currencies are incompatible with the historical concept of money, and they surely aren’t currency in the sense that the term has come to be understood historically.