A ray of hope for cryptocurrencies as India readies draft regulations

Still in the dark.
Still in the dark.
Image: REUTERS/Pawel Kopczynski
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A cloud of uncertainty hangs over the legal status of cryptocurrencies in India.

With draft regulations yet to be spelt out, and the seemingly contradictory statements coming from the Narendra Modi government, the fate of virtual coins remains suspended for now.

In a statement late last month, the government had communicated that it is looking to “ban (the) use of private cryptocurrencies in India.” However, a more recent document suggests all may not be lost for the industry.

On Nov. 19, government officials submitted a counter-affidavit in the supreme court in a case filed by cryptocurrency exchanges. The document, a copy of which was reviewed by Quartz, says authorities are still in the process of choosing between regulation and a ban.

“…several informal meetings have been held to develop a draft law to control/ban the use of crypto-currencies in India, promote use of blockchain technologies and also to examine (the) feasibility of official digital currencies in India.”

The counter-affidavit was filed following the court’s Oct. 25 order to the government to outline its policy and specify a timeline to finalise the draft regulations.

In November 2017, the finance ministry had tasked a panel headed by Subhash Chandra Garg, secretary in the department of economic affairs, to study digital currencies and suggest draft regulations for the sector. The committee is likely to submit its views to its own members by next month.

The Nov. 19 counter-affidavit reveals that the panel’s next two meetings are scheduled for December and January 2019 when it will deliberate upon the issue. The rules may be finalised only after that.

In the absence of any specific rules, India’s cryptocurrency industry is clutching at straws.

To ban or not to ban

“I am definitely reading it (the counter-affidavit) as something positive… the government has also used the word control and not just ban in its statement,” said Nischal Shetty, founder and CEO of WazirX, a cryptocurrency exchange. “However, a lot of things are unclear and it seems they (the government) are still trying to figure it out.” Shetty points out that the government wants to promote the blockchain technology that powers cryptocurrencies, which is not possible if the virtual coins are banned.

“The statement in the counter-affidavit shows that probably the government is still on the fence, and maybe they are not going to go for an outright ban as it can be problematic,” said a lawyer involved in the case, requesting anonymity.

However, not all are hopeful. “Unlike the PIB document, this counter-affidavit is a more considered response and has been vetted by the lawyers. It is likely that they decided to hedge it because they didn’t want to reveal at this point what their plans are,” said another lawyer advising the bourses, requesting anonymity. “I am being apprehensive because till now the government and the various regulators’ responses have been negative.”

Earlier, both the government and the central bank had expressed their dislike for cryptocurrencies, citing price volatility, the potential for money laundering, frauds, illegitimate financing etc. A panel set up in March 2017, preceding the Garg committee, had submitted a report highlighting these problems.

Things took a turn for the worse this April this year after India’s central bank decreed that lenders should not maintain any business relationship with the exchanges. The bourses then dragged the Reserve Bank of India (RBI) and the government to court.

The case reached the supreme court and final hearing began in September. After being postponed on several occasions, the case was to come up for hearing in the top court on Nov. 20. This has now been pushed to Nov. 27. Now, some lawyers have also sought more time so that the case can be heard in detail and a resolution achieved quickly.

The legal dispute is now in its last lap.

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