Back in March this year, a three-judge bench of the Supreme Court revoked a Reserve Bank of India (RBI) ruling that banned any entity in India from dealing in, or to be involved with cryptocurrency transactions. While this initially sent a wave of optimism throughout industry players around the world, the reality on the ground is that withdrawing the ban merely moves cryptocurrency into a grey area — with ambiguity that businesses cannot overlook. Now, the latest development is that the government is looking to outright ban cryptocurrency trading in India.
The world is now in high anticipation of the Indian policymakers’ next move. Instead of a blanket ban, the government ought to consider joining the other dynamic markets who opted for the regulatory approach — to draw out a regulatory framework that would suit the new-age, technology-driven business environment.
The ban was initially imposed — and now again being considered — to ensure market participants are protected from nefarious activities. Simply lifting the ban also has its adverse effects, but the current lack of clarity when it comes to cryptocurrency is already leaving participants exposed to risks in a policy vacuum. While businesses have the appetite to infuse the latest technologies to their offerings due to customer demands, without regulation they would rather err on the side of caution, instead of confidently experimenting and innovating. As the world enthusiastically embraces the potential of cryptocurrency together with blockchain, an outright ban will also cost India its spot as a leader in the space.
This all points to regulation as the answer. But what does regulation mean for India?
As a starting point, Indian policymakers can listen to the point of views from both private and public sectors, and reference global policies to craft a globally consistent and harmonized set of regulations. Japan, for example, has among the most progressive cryptocurrency regulations. Just this year, they introduced new changes to regulations of “virtual currency exchange services” which requires businesses offering virtual currency exchange services to register with the Financial Services Agency in Japan.
Singapore, on the other hand, adopted a risk-based approach which aims to regulate consistent with the risks posed by a given financial service activity — any digital payments tokens are regulated by the Monetary Authority of Singapore under the Payments Services Act. And the United Arab Emirates, at its Abu Dhabi Global Markets (ADGM) which is a financial free market zone, uses “digital assets” as an umbrella expression, and carves it into subsets such as digital securities, crypto assets, utility tokens and fiat tokens.
India however, is a unique market, and taken into account short and long term vision, policymakers can approach regulation in a very targeted manner. Here’s a potential scenario:
Firstly, consider adopting a digital asset taxonomy consistent with global practice — which will provide clarity to the legal character of digital assets. Currently, while the RBI’s Regulatory Sandbox was designed to incubate and test out new technologies, “cryptocurrency” and “crypto asset services” are ruled out. Why not open it up to businesses to safely test the value proposition of crypto-related use cases in the Indian context?
As a short term measure, the Gujarat International Finance Tec-City (GIFT) can provide a hospitable environment where participants — at home or abroad — can congregate, exchange ideas, and develop enterprise use cases of digital assets under a facilitative legal framework for digital asset service providers. This will ensure that services are tried and tested before being considered for wider market adoption.
In the long run, a body such as the Securities & Exchange Board of India (SEBI) can be well suited to license, regulate, and supervise digital asset service providers — eventually implementing a conducive regulatory framework for digital assets by amending specific financial sector laws.
Without regulations, India will miss out on opportunities that are enjoyed by many markets around the world. The full potential of blockchain — no matter how much it’s being encouraged by the government — cannot be maximized without cryptocurrencies. At the end of the day, businesses in India need clarity and a framework in which to operate when it comes to adopting innovative technologies like cryptocurrency and blockchain. And it is up to our policymakers to develop the path forward and realize India’s technological ambitions.
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