India plans to ban cryptocurrencies – but launch its own
The proposed ban, announced by the Indian government yesterday, is part of the Cryptocurrency and Regulation of Official Digital Currency Bill that will be introduced sometime this winter.
The planned legislation aims “to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India (RBI)”.
The proposed legislation follows a crackdown on cryptocurrencies in China, where financial regulators and the central bank have made all digital currency transactions illegal.
Laith Khalaf, head of investment analysis at AJ Bell, said: “India’s plan to ban cryptocurrencies has not wrought the same damage on the Bitcoin price as China’s summer crackdown, but it nonetheless marks yet another stumbling block in crypto’s advancement as an economic force in the real world.
“The wording of the Indian government’s announcement suggests there will be some exceptions to the ban in order to promote the underlying blockchain technology, though it’s not presently clear what those might be. There may be some question of how the government can prohibit the trading of cryptocurrency on private computers across international exchanges, but a ban would at least prevent advertising and marketing activities, which should limit activity.”
Governments generally have two main concerns around the rise of cryptocurrency. The first is that it makes it easier for criminals to launder money; the secondly is the impact on investors if the price bubble eventually bursts.
It seems inevitable that cryptocurrencies will continue to encounter either greater regulation or prohibition in more jurisdictions around the world, despite El Salvador announcing this week that it plans to build a city in the shape of a Bitcoin.
Khalaf added: “Regulators may also have a third concern around the proliferation of private market cryptoassets, which is that they could ultimately usurp power from central banks. This would most likely be those issued in the form of stablecoins, pegged to an existing national currency, rather than something like Bitcoin, whose volatility makes it unsuitable as a store of value, or a medium of exchange. Perhaps that’s why, alongside the plan to ban private cryptoassets, India announced it will be launching its own digital currency.
“In common with many other central banks, the Bank of England is also looking at issuing a digital pound and will be consulting on the subject next year. National digital currencies could bring benefits for consumers in terms of transactional speed and charges, but central banks who go down this path will need to tread very carefully, so that they don’t destabilise the existing financial ecosystem.”