Up until now, India has taken a very strict approach when it comes to the cryptocurrencies. Officials have emphasized on numerous occasions that they do not recognize cryptocurrencies as legal tender and that the virtual currency can’t be used officially as a means of payment. Furthermore, the government has prohibited financial institutions from dealing with parties that are somehow involved with the crypto-sphere. The absence of a regulatory framework means that the exchanges were left to their own devices as well, but this could change soon as the Ministry of Finance announces plans for a new set of regulations likely to be unveiled next month.
A draft has been prepared that will be discussed among the members of a special committee designated to determining the necessary regulations for cryptocurrencies. A representative said in a statement: “We are fairly close to developing a kind of template which we think might be in the best interest of our country. We have prepared a draft which we intend to discuss with the committee members in the first week of July”. The main challenge when drafting regulations for cryptocurrencies is to get the right balance of freedom of enterprise and control over speculative and deceitful activities. A representative of the committee said that the main work regarding which sides of the new technology to regulate has already been done and the whole process should not take longer than a month to complete.
Main objectives of the regulations for India.
Many countries in the world are experimenting with different approaches when it comes to cryptocurrencies. As there is no precedent for a similar technology, there are no examples to follow. Consequently, countries have to come up with new regulations from scratch. With astonishing demand for the new technology, they have to do it soon not to lose entrepreneurs to other countries. In addition, they have to be careful with many speculative and deceitful activities that are often connected with cryptocurrencies. Some countries, like China, have banned most related activities while still looking into the technology scientifically, while others, like the UK, do not want to scare away the businesses with tough policies. Still others, like Canada and Singapore, are testing the blockchain technology on a much larger scale.
Officials in India have outlined certain points that need the most attention right now. One of them is the know your customer policies of exchanges. As exchanges are currently unregulated, they do not have to meet any requirements. With the near-anonymity of cryptos, many people use it for money-laundering purposes. Meticulous KYC policies have to be set out to identify parties to the transaction before allowing them to transfer money. New regulations will likely touch upon these procedures.
The status of cryptocurrencies also needs to be finalized. Some countries treat cryptos as assets, while others recognize them as currencies. This has different implications for the consumers, so it is necessary to give an official status to the new technology. While Indian officials have expressed numerous times that they do not support the recognition of virtual currency as a legal tender, we can only wait and see what the new set of regulations has to say about the issue.