Cryptocurrency and Regulation of Official Digital Currency Bill, 2021

 The Budget session of Parliament is likely to consider this bill, which prohibits all private cryptocurrencies and provides for an official digital currency to be issued by the Reserve Bank of India.

The purpose of the law has been described as:

1. to create a facilitative framework for an official digital currency issued by the RBI.
2. to “prohibit all private cryptocurrencies in India”.

The Bill also seeks to prohibit all private cryptocurrencies in India,

however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.

Background:

The Supreme Court, last year, set aside an April 6, 2018, circular of the Reserve Bank of India (RBI) that prohibited banks and entities regulated by it from providing services in relation to virtual currencies (VCs).

What did the Court say?

1. RBI has not come out with a stand that any of the entities regulated by it namely, nationalised banks/scheduled commercial banks/cooperative banks/NBFCs, have suffered any loss or adverse effect directly or indirectly, on account of virtual currencies (VCs)
2. Hence, the RBI circular is “disproportionate” with an otherwise consistent stand taken by the central bank that VCs were not prohibited in the country.
3. Besides, the court found that the RBI did not consider the availability of alternatives before issuing the circular.
4. Besides, the court referred to the Centre’s failure to introduce an official digital rupee despite two draft Bills and several committees.

What are Cryptocurrencies?

Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

Examples: Bitcoin, Ethereum etc.