Prime Minister Narendra Modi recently expressed his views on cryptocurrencies and related technology. During his speech at the B20 summit on August 27, which was organised by CII, he emphasised the importance of global collaboration in developing regulations for emerging technologies.
- In an interview with a newspaper, he discussed blockchain and cryptocurrency.
- The PM emphasised that the global nature of these emerging technologies necessitates a unified approach to regulations.
- He advocated for regulations of cryptocurrency that go beyond single nations or groups and are universally applicable.
- He highlighted the work done under India’s G20 presidency in the past nine months, especially on debt and crypto agendas.
- PM Modi revealed that the focus has moved beyond financial stability to understand the wider macroeconomic influences, especially for emerging markets and developing economies.
What Is Cryptocurrency?
Cryptocurrency, fundamentally, is a digital asset that operates on a network spanning multiple computers. It embodies a decentralised structure, allowing for its existence outside the control of central governance or authorities.
To use it, you must understand three words: blockchain, decentralization and cryptography.
Why Does Cryptocurrency Need Regulation?
Cryptocurrencies are gaining popularity, but they’re also attracting illicit activities and scams. To combat this, it’s important to set rules and standards for their use and trading. Here’s why regulations are crucial:
- Safety from Scams: Regulators can protect consumers from financial harm by reducing the risk of scams and other illicit activities. This is particularly important as crypto exchanges require huge technological investments to detect suspicious transactions.
- Terror Financing Concerns: Unregulated cryptocurrencies can potentially fund illegal activities. The Indian government was the first to express concerns about terror financing through cryptocurrency.
- Market Stability: Cryptocurrencies are known for their volatility, causing significant value fluctuations in short time periods. This makes them risky for investors and businesses. Regulations can help reduce this volatility and instil more confidence in their exchange use.
- Consistency with Financial Policies: Cryptocurrency regulations can ensure that their use aligns with broader financial and economic policies, like tax compliance, preventing money laundering and terrorist financing. Regulated use of cryptocurrencies can be beneficial to all stakeholders in the financial system.
Cryptocurrency Regulation In India
India is currently in a state of indecision when it comes to regulating crypto, refraining from either legalising or penalising its usage. However, India is shaping its approach to the regulation of cryptocurrencies and digital assets, with new policies and pilot programs on the horizon. Here are the major developments:
- The Indian Parliament recently introduced the Official Digital Currency Bill, 2021. This bill paves the way for the development of a digital currency, to be issued by the Reserve Bank of India (RBI). However, the bill has not been approved by the Parliament yet.
- The Finance Minister, Nirmala Sitharaman, announced in the 2022-23 budget a 30% tax on earnings from cryptocurrency transactions. Additionally, she introduced a 1% TDS on crypto transactions above a certain limit. Even gifts in crypto and digital assets are subject to tax.
- While India hasn’t taken a clear stand on banning or regulating crypto, the existing regulations are somewhat unclear and not very helpful for investors. In late 2022, India started a tokenized rupee pilot program.
- On March 8, 2023, India decided to enforce anti-money laundering rules on cryptocurrencies and other virtual assets. This is a step towards tightening the control on digital assets. The Finance Ministry has applied anti-money laundering laws to crypto trading, custodianship, and related financial services.
- As a result, Indian cryptocurrency exchanges are now required to report any suspicious activities to the Financial Intelligence Unit India (FIU-IND).
- This move aligns India with the international trend of enforcing anti-money laundering regulations on digital assets platforms, much like banks and stock brokers.
Cryptocurrency Regulations Around the World
- Cryptocurrency has sparked considerable debate since its inception.
- There is a divided global opinion on the decentralisation aspect of cryptocurrency.
- The legal recognition of cryptocurrency varies across countries.
- Some nations have imposed regulations under their anti-money laundering and counter-terrorism financing laws (AML/CFT).
- Such regulations aim to curb the use of cryptocurrencies for illegal activities.
United States
- In 2022, the U.S. unveiled a new framework allowing more regulation in the field of cryptocurrencies.
- With this new strategy, existing market regulators like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) gain more control.
- The SEC has started to regulate the crypto sector, as seen with the well-known lawsuit against Ripple. This case revolves around Ripple allegedly raising over $1.3 billion via unregistered sales of their own token, XRP.
- Cryptocurrency legality differs across U.S. states, with some still undecided on their stance. However, overall, the U.S. displays a positive attitude towards cryptocurrency and its trading community.
- Lastly, the Biden administration’s new plan recognises the substantial advantages of launching a central bank digital currency (CBDC). This would be a digital version of the U.S. dollar.
China
- China sees cryptocurrencies as a type of property when it comes to inheritance matters.
- The People’s Bank of China (PBOC) does not allow crypto exchanges to operate due to their role in facilitating public financing without official permission.
- In May 2021, a ban was imposed on Bitcoin mining in China, leading many miners to shut down or move their operations to other countries with more lenient regulations.
- By September 2021, all cryptocurrencies were completely banned in China.
- Despite these restrictions, the country initiated the next phase of its central bank digital currency (CBDC), the digital yuan (e-CNY), in August 2022.
The European Union
- In 2020, the European Commission developed a legislative plan to regulate virtual assets. This plan has received support from many companies and agencies within the Union.
- The goal of this legislation is to prevent fragmentation in the financial regulatory frameworks.
- The Commission ensures that people can access and use cryptocurrency safely.
Canada
- Cryptocurrency is not recognised as legal tender in Canada.
- Despite this, Canada is forward-thinking when it comes to cryptocurrency regulations.
- It was the pioneer in approving a Bitcoin Exchange-Traded Fund (ETF).
- Several of these funds are now traded on the Toronto Stock Exchange.
- Cryptocurrency trading platforms need to register with provincial regulators.
- This requirement is enforced by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC).
United Kingdom
- The U.K. doesn’t have laws specifically for cryptocurrencies.
- Cryptocurrency is seen as property and not legal money in the U.K.
- Crypto exchanges have to register with the Financial Conduct Authority (FCA).
- Trading in crypto derivatives is not allowed in the U.K.
- Crypto businesses need to follow rules for client information, anti-money laundering and combating terrorism funding.
- How crypto transactions are taxed depends on the type of activity and who does the transaction.
- Cryptocurrency trading is taxed in the U.K. like trading in regular currency.
- Corporate tax rules apply to businesses dealing with cryptocurrencies and crypto exchanges.
Japan
- Japan views cryptocurrencies as lawful property under its Payment Services Act (PSA).
- Cryptocurrency exchanges need to register with the Financial Services Agency (FSA) in Japan.
- These exchanges also need to adhere to AML/CFT (Anti-Money Laundering/Combating the Financing of Terrorism) rules.
- The Japanese Virtual Currency Exchange Association (JVCEA) was set up in 2020. All cryptocurrency exchanges in Japan are its members.
- Profits from cryptocurrency trading are considered as miscellaneous income in Japan and are taxed.
Australia
In Australia, cryptocurrencies are recognized as legal property.
- They are liable to capital gains tax.
- Cryptocurrency exchanges can function in Australia, but they must adhere to certain rules.
- They must register with the Australian Transaction Reports and Analysis Centre, known as AUSTRAC.
- These exchanges are also required to fulfil certain Anti-Money Laundering (AML) and Counter Terrorism Financing (CTF) responsibilities.
Singapore
- Singapore views cryptocurrency as property, not as an official currency.
- The Monetary Authority of Singapore (MAS), the country’s financial regulator, supervises exchanges by following the stipulations of the Payment Services Act (PSA).
- While it isn’t considered legal tender, cryptocurrency transactions are permitted and regulated in Singapore.
Brazil
- Bitcoin is not considered official money in Brazil.
- Despite this, a law has been passed in Brazil that accepts cryptocurrencies as valid forms of payment.
- This law was a great boost for the use of digital currencies in the country.
- The law got the green light from Brazil’s Chamber of Deputies in 2022, marking a key moment in cryptocurrency adoption.
The Status Of Cryptocurrency In India: An Overview
- Cryptocurrencies are not regulated by any central authority in India. This means there are no official rules, regulations, or guidelines for disputes involving them.
- The responsibility and risks of cryptocurrency trading fall entirely on the investors.
- India’s Finance Minister, Nirmala Sitharaman, has proposed taxing digital assets, sparking discourse on the legal status of cryptocurrencies in the country.
- While taxing these virtual currencies might be seen as a first step towards official recognition, the government has not yet clarified whether cryptocurrencies like Bitcoin are legal in India.
- Statements from key figures such as the Reserve Bank of India Governor and the country’s Finance Minister suggest that while cryptocurrencies are not officially illegal, they remain unregulated.