Lok Sabha Question No. 784 (UNSTARRED), answered on 2022-02-07
Subject: Virtual Currencies
Ministry: FINANCE
Asked by: D.K. Suresh

## GOVERNMENT OF INDIA

## MINISTRY OF FINANCE LOK SABHA UNSTARRED QUESTION NO. 784 TO BE ANSWERED ON 07.02.2022

## Virtual Currencies

## 784. SHRI D.KSURESH:

Will the Minister of FINANCE

be pleased to state:

- (a) whether the Government has constituted any committee to study the issues related to virtual currencies and its impact on the economy of the country;
- (b) if so, the details of recommendations made by the said committee;
- whether the committee has given any recommendation on prohibiting the cryptocurrencies in the country and if s0, the details thereof; specific
- (d) whether the Government has taken any steps to implement the recommendations of the committee; and
- (e) if so, the details thereof and ifnot, the reasons therefor?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PANKAJ CHAUDHARY)

(a) & (b): The Government had   constituted an Inter-Ministerial Committee (IMC) on 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 specific action to be taken in this matter. The details of the propose recommendations made by the said committee are at Annexure-I 2nd

- (c): Yes; Sir: The Committee, inter-alia,   recommended that all cryptocurrencies, except any cryptocurrency issued by the State, be banned in India. private
- (d) & (e): The Government examined the IMC report in consultation with concerned ministries & regulators (RBL & SEBI) However this sector is still evolving and issues   connected with  this sector 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. require

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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 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: great 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:

RBI, SEBI, IRDA, PFRDA and IBBI should also focus on DLT to building of appropriate regulations for development of DLT in their respective areas. explore

(d) DLT can be used to reduce compliance   costs \_ for KYC requirements. MeitY may also the mechanisms through which customer information can be maintained on DLTs through a consent-based mechanism: explore

(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.

The Committee has proposed a specific legislation to promote and regulate use of DLT in the financial and associated fields.

## 2 Virtual Currencies

The Committee notes with serious concern mushrooming of cryptocurrencies almost invariably issued abroad and numerous people in India investing in these cryptocurrencies. 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 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 they 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 fiat currencies. replace

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 from cryptocurrencies. The Committee also  recommends that traders   and other financial system participants should be prohibited from dealing with cryptocurrencies. people,

Accordingly, the Committee has recommended a law banning the cryptocurrencies in India and   criminalising   carrying on of any activities connected with cryptocurrencies in India.

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 of such digital currency by virtue of its powers under Section 22 of the RBI Act: regulator

## 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:

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:

The Committee is of the view that DLT may be leveraged to improve the existing e-stamping for the purposes of collection of stamp duty. system g) The Committee is of the opinion that data localisation   requirements proposed in the draft Data Protection Bill may need to be 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. applied

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