In a policy paper titled “The Case for Regulating the Use of Cryptocurrency in India ”, the Internet and Mobile Association (IAMAI) has stated that the government should regulate cryptocurrencies instead of banning them. As per IAMAI, the government could control cryptocurrencies and encourage their usage in India since they have numerous advantages. However, the Indian government’s proposed blanket ban will establish a shadow market, halt blockchain adoption, and prevent the government’s regulatory bodies from monitoring any negative consequences.
The policy paper is prepared by the Blockchain and Crypto Committee of the IAMAI and states that banning decentralized cryptocurrencies is virtually impossible. The Committee suggested that the government should regulate cryptocurrencies as an asset class or a medium exchange. Regulating the currencies will improve India’s position as a global IT power and will capitalize on blockchain and cryptocurrency technology.
In an article, Medianama discusses the recommendations by the paper and the financial benefits of regulating cryptocurrencies. The recommendations of the paper are summarized below.
Ban leads to unintended consequences
Any discussion of different regulatory approaches is contingent on how a nation handles technology legally. In the current situation, with the government considering virtual currencies to be illegal, there isn’t even a place to start looking for an alternate regulatory solution. Citing the example of the Drone industry, whereby the government “clipped the wings a nascent industry” in 2014 and proposed to regulate it in 2018. Throughout this time India lost a major opportunity to be a market leader in the industry with Chinese manufactures taking a market share of 70%.
Ban is unconstitutional
Discussing the constitutional of the ban, the paper stated that “Any restrictions on fundamental rights must meet the test of proportionality and reasonableness” This means that a measure limiting fundamental rights must meet the following criteria:
- It must be made for a proper purpose,
- It must be rationally connected to the fulfilment of the purpose,
- There must be no less invasive measures that are equally efficient,
- It must be done by means that are suitable and necessary for the purpose, and
- It must be balanced with the negative consequences.
India should follow International best practices
Citing examples of different countries regulating cryptocurrencies, the paper stated that the most popular approach among countries that have legalised and controlled cryptocurrency has been to classify it as either financial assets or foreign currency, and tax it accordingly. Registration with and accountability to federal authorities has mitigated unfavourable side effects such as terrorist funding and money laundering. As per IAMAI, Industrialised countries have become more progressive and have resorted to control cryptocurrencies.
Promoting blockchain unicorns
As per IAMAI, the government should leverage its status as the third fastest-growing hub of technology startups to create a strong ecosystem for innovation and entrepreneurship. Statistics suggest that the Indian crypto industry expanded by more than 400 per cent in terms of trading volumes and users since the RBI ban was lifted in 2020 following the case of IAMAI v. RBI. IAMAI states that another ban will stifle the industry and damage India’s startups.
Making crypto investments safe
Most people assume crypto-currencies are risky due to their uncertainty, the paper argues that crypto-investments deliver better risk-adjusted returns than stock market investments. It stated that various tools, such as derivatives, stop limits on orders, and increased investor education could be used to keep crypto-investments secure.
Benefits of Cryptocurrencies
While suggesting recommendations to regulate cryptocurrencies, IAMAI stated the benefits of regulating cryptocurrencies. The benefits include improving international payments and trade facilitations, an additional revenue source for the State, and increasing financial inclusion. Apart from this, the paper also stated that regulating cryptocurrencies can increase innovation and technological development in the country and can revolutionize philanthropy too.
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