An inter-ministerial committee has recommended banning cryptocurrencies in India along with imposition of fines and penalties on activities linked with private virtual currencies in the country.
The report and the draft bill on cryptocurrencies prepared by the committee headed by Economic Affairs Secretary Subhash Chandra Garg, however, observed that the government can, in future, consider having an official digital currency in the country regulated by the Reserve Bank of India (RBI).
The committee noted with serious concern mushrooming of cryptocurrencies almost invariably issued abroad and numerous people in India investing in these cryptocurrencies.
"All these cryptocurrencies have been created by non-sovereigns and are in this sense entirely private enterprises. There is no underlying intrinsic value of these private cryptocurrencies. These private cryptocurrencies lack all the attributes of a currency," said the report.
It noted that a review of global best practices shows that private cryptocurrencies have not been recognised as legal tender in any jurisdiction.
As virtual currencies and the underlying technologies are still evolving, the group has proposed setting up of a Standing Committee to revisit the issues as and when required.
The government would now study the report and the draft bill and consult departments and regulatory authorities concerned to take a final decision. On issuing of official digital currency, the committee advised the government to have an "open mind" regarding the introduction of an official digital currency in India.
"It may be possible to visualise some models of future official digital currencies but as of date it is unclear whether there is clear advantage in the context of India to come up with an official digital currency," it said.
The committee recommended that, if required, a group may be constituted by the Department of Economic Affairs, with participation of representatives of the RBI, Ministry of Electronics and IT and Department of Financial Services for examination and development of an appropriate model of digital currency in India.
"If, in due course of time, it is decided to issue a digital currency in India having the status of a legal tender, the Reserve Bank of India should be the appropriate regulator of such digital currency by virtue of its powers under Section 22 of the RBI Act," it said.
The panel was in favour of digital ledger technologies' usage by banks and other institutions. "The committee recommends that the RBI examine the utility of using DLT- based systems for enabling faster and more secure payment infrastructure, especially for cross-border payments," it said.
It also recommended that blockchain-based systems may be considered for building a low-cost KYC (Know Your Customer) system that reduces the need for duplication of KYC requirements for individuals.
"The committee is of the opinion that DLT-based systems can be used by banks and other financial firms for processes such as loan-issuance tracking, collateral management, fraud detection and claims management in insurance, and reconciliation systems in the securities market. The committee therefore recommends that financial sector regulators examine the uses of DLT in processes that can be incorporated by banks, insurance companies, securities exchanges etc. in their functioning," the report said.
The committee was set up on November 2, 2017 under the chairmanship of the Economic Affairs Secretary, with the Secretary for Electronics and IT Ministry, the Chairman of Securities and Exchanges Board of India (SEBI) and a Deputy Governor of the Reserve Bank of India as its members to study the issues related to virtual currencies and propose specific action to be taken in the matter.