A government panel said policymakers and regulators should have an open mind regarding the introduction of an official digital currency in India.
A panel tasked with examining virtual currencies has recommended that the government should ban private cryptocurrencies and could consider launching its own digital money.
It has also recommended that to deter the use of private cryptocurrencies, anyone doing so could be punished with imprisonment of up to 10 years.
The committee on virtual currency is headed by Finance Secretary Subhash Garg.
The other members are Ajay Prakash Sawhney, secretary, Ministry of Electronics and Information Technology; Ajay Tyagi, chairman, Securities and Exchange Board of India (Sebi); and B P Kanungo, deputy governor, Reserve Bank of India (RBI).
The committee submitted its report on Monday - after a delay of a year.
A piece of draft legislation, Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019, was also put in the public domain on Monday.
In its report, the committee has recommended that distributed ledger technology (DLT), the most common use of which is blockchain, can be of great benefit to the country in several financial and non-financial areas, such lowering costs of the Know Your Customer process and improving access to credit.
“There is no underlying intrinsic value of private cryptocurrencies.
"These… lack all the attributes of a currency.
"There is no fixed nominal value of these private cryptocurrencies.
"They neither act as any store of value nor they are a medium of exchange,” the panel said in its report, noting that since their inception, cryptocurrencies had demonstrated extreme fluctuations in their prices.
The draft Bill states: “Whoever directly or indirectly mines, generates, holds, sells, deals in, transfers, disposes of or issues cryptocurrency or any combination thereof… shall be punishable with fine or with imprisonment which shall not be less than one year but which may extend up to ten years, or both.”
The panel said policymakers and regulators should have an open mind regarding the introduction of an official digital currency in India.
“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 an official digital currency.”
The panel also recommended if required, a group can be constituted by the finance ministry’s department of economic affairs, with participation of the representatives of the Reserve Bank of India (RBI), the Ministry of Electronics and Information Technology (MeiTY), and the department of financial services for examination and development of an appropriate model of digital currency in India.
If one is launched, the RBI should regulate it.
Technology experts, however, were not very happy with the recommendations of the panel.
“The definition of cryptocurrency in the report is reasonably vague and may not cover something like Facebook’s libra or even bitcoin if one were to read it too technically.
"The drafting needs to be better,” said a lawyer who did not want to be named.
Experts said it might be possible to develop a distributed ledger with nodes kept only in India.
“As a venture capitalist, I find… the suggestion of a ban quite disappointing because they did not engage with start-ups or domain experts,” said Nitin Sharma, technology investor and founder, Incrypt Blockchain.
Photograph: Benoit Tessier/Reuters