MINISTER OF STATE IN THE MINISTRY OF FINANCE
(a) & (b): Yes, Sir. The Government had constituted an Inter-Ministerial Committee (IMC) on 2nd November, 2017 under the Chairmanship of Secretary (EA) with member representatives from Ministry of Electronics & Information Technology (Meity), Securities & Exchange Board of India (SEBI) and Reserve Bank of India (RBI) for examining the issues of Virtual Currencies (VC) and to propose specific action to be taken in this matter. The details of the recommendations made by the said committee are at Annexure-I.
(c): Yes, Sir. The Committee, inter-alia, recommended that all private cryptocurrencies, except any cryptocurrency issued by the State, be banned in India.
(d) & (e): The Government examined the IMC report in consultation with concerned ministries & regulators (RBI & SEBI). However this sector is still evolving and issues connected with this sector require careful examination, consultation with experts and stakeholders, and international coordination. Accordingly, Government is in the process of such consultation. With regard to introduction of Central Bank Digital Currency (CBDC) the Government has included necessary amendments to the Reserve Bank of India Act, 1934 in the Finance Bill, 2022 to provide for an enabling framework for introduction of CBDC.
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Annexure-I
Major Recommendations of the Inter-ministerial Committee with regard to Virtual Currency:
1. Overview of Distributed Ledger Technology
(a) The Committee believes that DLT is an important new and innovative technology, which will play a major role in ushering in of the digital age. The DLT can be of great benefit to India in several financial and non- financial areas. In finance, DLT can be particularly beneficial in the areas of trade financing, lowering the costs of personal identification for KYC related issues, and improving access to credit.
(b) The Committee therefore recommends that the Department of Economic Affairs should identify uses of DLT and take necessary measures to facilitate the use of DLT in the entire financial field.
(c) RBI, SEBI, IRDA, PFRDA and IBBI should also focus on DLT to explore building of appropriate regulations for development of DLT in their respective areas.
(d) DLT can be used to reduce compliance costs for KYC requirements. MeitY may also explore the mechanisms through which customer information can be maintained on DLTs through a consent-based mechanism.
(e) MEITY and GSTN will need to play a major technology supportive role for exploring and building the uses of DLT for enabling trade financing by enabling the growth of trade invoicing through DLT.
(f) The Committee has proposed a specific legislation to promote and regulate use of DLT in the financial and associated fields.
2. Virtual Currencies
(a) The Committee notes 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 enter- prises.
(b) There is no underlying intrinsic value of these private cryptocurrencies. These private cryptocurrencies lack all the attributes of a currency. There is no fixed nominal value of these private cryptocurrencies, i.e., neither act as any store of value nor they are a medium of exchange. Since their inceptions, cryptocurrencies have demonstrated extreme fluctuations in their prices. Therefore, the Committee is of clear view that the private cryptocurrencies should not be allowed. These cryptocurrencies cannot serve the purpose of a currency. The private cryptocurrencies are inconsistent with the essential functions of money/currency, hence private cryptocurrencies cannot replace fiat currencies.
(c) Areview of global best practises also shows that private cryptocurrencies have not been recognised as a legal tenderin any jurisdiction.
(d) The Committee recommends that all private cryptocurrencies, except any cryptocurrency issued by the State, be banned in India.
(e) The Committee endorses the stand taken by the RBI to eliminate the interface of institutions regulated by the RBI from cryptocurrencies. The Committee also recommends that all exchanges, people, traders and other financial system participants should be prohibited from dealing with cryptocurrencies.
(f) Accordingly, the Committee has recommended a law banning the cryptocurrencies in India and criminalising carrying on of any activities connected with cryptocurrencies in India.
(g) The Committee also recommends the Government may consider establishing a Standing Committee to take into account the technological developments globally and within the country and also the views of global standard setting bodies. The Standing Committee could revisit the issues addressed in the report as and when needed.
3. Central Bank Digital Currency
(a) The Committee is of the view that it would be advisable to have an open mind regarding the introduction of an official digital currency in India.
(b) 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 a official digital currency. Hence, the Committee recommends that, if required, a Group may be constituted by the Department of Economic Affairs, with participation of the representatives of the RBI, MeitY and DFS for examination and development of an appropriate model of digital currency in India.
(c) 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.
4. Uses of DLT for other financial services
(a) 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.
(b) The Committee recommends that blockchain based systems may be considered by MeitY for building a low-cost KYC system that reduces the need for duplication of KYC requirements for individuals.
(c) 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.
(d) The Committee recommends that SEBI may evaluate use of DLT for IPOs and FPOs as an alternative to present system of issuances. The Committee also recommends that SEBI may examine whether the depository systems can move to DLT based system.
(e) Similarly, DLT can be beneficial for removing errors and frauds in land markets if the technology is implemented for maintaining land records. The Committee therefore recommends that various state governments may examine the feasibility of using DLT for land-records management.
(f) The Committee is of the view that DLT may be leveraged to improve the existing e-stamping system for the purposes of collection of stamp duty.
(g) The Committee is of the opinion that data localisation requirements proposed in the draft Data Protection Bill may need to be applied carefully, including with respect to the storage of critical personal data so as to ensure that there is no adverse impact on Indian firms and Indian consumers who may stand to benefit from DLT-based services.
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