The recommendation of an inter-ministerial committee that India should ban all private cryptocurrencies, that is, Bitcoin and others like it, hardly comes as a surprise. Indian policymakers and administrators have time and again made clear their distaste for them, their existence owed almost entirely to advanced encryption technologies. In his Budget speech in 2018, Finance Minister Arun Jaitley said the government doesn’t consider them legal tender. The Reserve Bank of India has repeatedly warned the public of the risks associated with dealing with cryptocurrencies. Bitcoin, the most prominent among them, has yo-yoed wildly in value, even over short periods of time. A May 2019 article by Bloomberg, citing data from blockchain analysis firm Chainalysis, said “speculation remains Bitcoin’s primary use case”. Its use in illegal online marketplaces that deal with drugs and child pornography is well-documented. There have been cases of consumers being defrauded, including in India. Given all this, it is understandable that the committee, under the chairmanship of Subhash Chandra Garg, the former Economic Affairs Secretary, has come across as being wary of private cryptocurrencies even while advocating a central bank-issued cryptocurrency.
Governments and economic regulators across the world are wary of private cryptocurrencies. As they need neither a central issuing authority nor a central validating agency for transactions, these currencies can exist and thrive outside the realm of authority and regulation. They are even deemed a threat to the official currency and monetary system. The question then is whether banning cryptocurrencies is the most effective way to respond. The inter-ministerial committee believes it is, going so far as to draft a law that mandates a fine and imprisonment of up to 10 years for the offences of mining, generating, holding, selling, dealing in, transferring, disposing of, or issuing cryptocurrencies. But six of the seven jurisdictions that its report cites have not banned cryptocurrencies outright. Many of them, including Canada, Thailand, Russia and Japan, seem to be moving on the path of regulation, so that transactions are within the purview of anti-money laundering and prevention of terror laws. China, which India has taken a cue from, has gone for an outright ban. Even there, the report says, “owing to the network-based nature of cryptocurrencies, after banning domestic crypto exchanges, many traders turned to overseas platforms to continue participating in crypto transactions.” Trading in China is now low but not non-existent. But why would an outright ban be a superior choice to regulation, especially in a field driven by fast-paced technological innovations? The report, unfortunately, doesn’t clarify that point.