It appears a major concern for the Indian government concerning Bitcoin and other cryptocurrencies is the stability of its fiat currency (the rupee). A government committee examining the matter fears that allowing cryptocurrency transactions in the country may have a negative impact on the rupee.
According to Quartz India, a fact-finding panel set up the government in 2017 has identified yet another potential problem with cryptocurrencies. The Subhash Chandra Garg-led committee is of the opinion that Bitcoin and other cryptocurrencies will have a destabilizing effect on the Indian rupee.
Preserving the Rupee Stability
An anonymous source who spoke with Quartz India on the matter said:
“If bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilizing the fiat currency is a major concern for them [the Garg panel]. The overall impact on the financial ecosystem that it is likely to have is still unclear, and it has been a challenge to convince them on this particular point.”
From concerns over terrorist funding, money laundering, and other fraudulent activities, now the government is putting up the preservation of rupee monopoly within the country as a potential reason for banning cryptocurrencies. If there’s one thing the present government in the country has consistently been about, it is tight monetary policies, case in point, the 2016 demonetization.
So far, the reaction from stakeholders and other commentators in the country is that such fears are premature. Vaibhav Parikh and Jaideep Reddy of the law firm; Nishith Desai Associates, say the government ought to focus on enacting regulations for the industry instead of prohibiting the use of cryptocurrencies.
Commenting on the matter, Koinex founder, Rahul Raj, said:
“At this point, it may be a bit premature to worry about this as right now even globally only a handful of payments are made using virtual currencies and that will be the case till blockchain reaches the scale that say Mastercard or Visa have.”
India’s War on Bitcoin
By suggesting Bitcoin could negatively impact rupee monopoly within the country, the government appears to be introducing a new chapter in the war against Bitcoin. In 2018, the nation’s apex bank; the Reserve Bank of India (RBI), banned banks from facilitating the activities of cryptocurrency exchange platforms.
This move cut off access to banking services for such platforms. It also marked the first step taken by India in censoring the cryptocurrency industry. Upon the proclamation of the prohibition, aggrieved stakeholders decided to seek redress in court.
The Supreme Court failed to decide in 2018 as the government didn’t heed to a tow-week deadline given in October 2018. Reports that emerged at the latter part of the last year indicated cryptocurrency regulations might arrive in 2019 with a possible reversal of the RBI ban.
Apart from the prohibition enacted by the RBI, the cryptocurrency industry in the country has also endured other difficulties. In early January 2019, Indian cryptocurrency users took to social media to expose the activities of some banks in the country.
"We noticed you did a transaction involving crypto, hence, we will close your account within 30 days"
– Kotak Mahindra Bank
P.S: Glad they're doing it for me pic.twitter.com/JIWzeU54i5
— Shalini⚡ (@DesiCryptoHodlr) January 12, 2019
According to the reports, banks in India issued warnings to their customers to stay away from cryptocurrency dealings or have their accounts closed. The Bengaluru police also went after the co-founders of UnoCoin for illegally installing a Bitcoin ATM.
For many cryptocurrency enthusiasts in India, the present situation if not changed quickly might mean the country falling behind others in the race to adopt the emerging technology. Recently, Iran, another country that previously banned Bitcoin reversed the action.
Many have taken to social media, calling on the government to rethink its stance of the matter, so that India doesn’t miss out on what could potentially be a paradigm-shifting innovation. Already, there have been casualties of the Bitcoin ban with companies like Zebpay shuttering their operations in the country.