India is trying to implement a new ban on cryptocurrencies.
The previous attempt failed because of its unconstitutionality, hence the government of the country is looking for another way.
The previous ban was based only on a memo from the central bank, the Reserve Bank of India (RBI), whereas this time it is a real new law.
According to the Indian website Economic Times (ET), quoting an anonymous senior official of the government itself, a new legal framework to regulate cryptocurrencies is being developed.
ET also reports that the drafting of the new bill would start right after the Supreme Court’s decision of March 4th to cancel the RBI’s April 2018 memorandum. The details of the new legal framework are not yet clear though, nor is it clear whether the new law might also run the risk of being ultimately declared unconstitutional.
The website reveals that if the bill continues along the same lines as the previous attempt, it will seriously impact investors, exchanges, and other entities operating with cryptocurrencies, although there are currently no confirmations.
In fact, as early as July 2019 a high-level government panel prepared a bill prohibiting the use of all forms of private cryptocurrencies, with imprisonment of up to 10 years for those who violate these rules.
The draft law will be sent to the Cabinet after consultations and then to Parliament.
Given that the removal of the ban had begun to give a strong boost to the development of the crypto sector in India, it is possible that the government has decided to speed up the development of the new regulatory framework, as it seems to feel a degree of fear towards these new financial technologies.
At the moment, therefore, there are two opposing views in the country: the operators in the sector, who would like to be able to expand their business after the removal of the ban, and the government authorities, who instead fear that cryptocurrencies could find fertile ground in the country.
The reasons why the Indian authorities are so strongly opposed to the use of cryptocurrency are not known.
According to some hypotheses, extrapolated from the 2019 government panel report, they would be excessively volatile and could lead to the rise of an alternative currency in the country.
While the first reason appears to be rather weak, considering that cryptocurrencies are certainly not the only volatile asset existing today in the financial markets, the second one could fully justify the obvious fears of the government and the central bank.
For example, looking at the Indian Rupee exchange rate curve against the US dollar over the last 5 years, there is a clear downward trend for the country’s currency over the long term, and it is possible that the Indian authorities are essentially trying to protect it.
Yet with an inflation rate close to 10%, this seems a doomed attempt.
If anything, it is precisely the monetary policies adopted by the country’s central bank in recent years that may have weakened the rupee, regardless of whether the use of cryptocurrencies becomes widespread or not. In other words, if this was the motivation, it seems extremely unlikely that the ban on cryptocurrencies could really be able to strengthen the country’s fiat currency.
