India proposes law to ban cryptocurrencies, create official digital currency

Context

• The Centre plans to introduce a law to ban private cryptocurrencies such as bitcoin and put in place a framework for an official digital currency to be issued by the central bank, according to a legislative agenda listed by the government.

Background

• In mid-2019, a government panel headed by finance secretary Subhash Chandra Garg,  recommended banning all private cryptocurrencies.
• It recommended a jail term of up to 10 years and heavy fines for anyone dealing in digital currencies.
• The panel has asked the government to consider the launch of an official government-backed digital currency in India, to function like bank notes, through the Reserve Bank of India.
• 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.

Objective of the law

• The law will "create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India [RBI].
• The legislation seeks "to prohibit all private cryptocurrencies in India.
• However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Global Status

• 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.