After months of discussions and rumors that it was taking a less hostile stance on cryptocurrencies, the government of Prime Minister Narendra Modi re-introduced legislation Tuesday (Nov. 23) that would impose an outright ban on digital currencies.
If the “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” passes — and Modi’s government has more than enough votes in Parliament — the two largest countries in the world will have outlawed cryptocurrency.
Together with China, which banned crypto trading on Sept. 24, that means more than 3 billion people will not be allowed access to cryptocurrencies if the legislation is enacted.
Read more: China Declares All Cryptocurrency, Related Transactions Illegal
That will have two notable effects. The first is it will make it easier for other countries to outlaw cryptocurrencies. The second is it will drastically reduce the size of the crypto market — assuming the ban is enforced.
India’s ban comes despite its citizens’ strong embrace of crypto. In October, blockchain data firm Chainalysis ranked India No. 2 in the world on its 2021 Global Cryptocurrency Adoption Index measuring grassroots adoption of digital assets. The U.S. ranked No. 8.
Cryptocurrency trading has undergone something of a renaissance in India since a March 2020 Supreme Court ruling overturned a ruling by the Reserve Bank of India (RBI) that ordered banks not to do business with digital currency firms.
According to Chainalysis, India’s cryptocurrency market grew 641% between July 2020 and June 2021. Nearly two-thirds of Indian crypto transaction value was by institutional exchanges in amounts of $1 million or more.
Chainalysis also noted that nearly 60% of India’s cryptocurrency activity takes place on decentralized finance (DeFi) exchanges. With no central corporate control, decentralized exchanges (DEXs) are far harder to police that normal cryptocurrency exchanges.
Investors have taken note. In August, Indian cryptocurrency exchange CoinDCX became the country’s first crypto unicorn, according to a blog post, after a $90 million Series C venture round led by B Capital Group valued it at $1.1 billion. Major crypto industry companies including Coinbase Ventures, Polychain and Block.one also participated.
However, the RBI has remained steadfastly opposed to crypto, with RBI Governor Shaktikanta Das saying last week, “as a central bank we have serious concerns from the macroeconomic and financial stability points of view,” according to The Economic Times.
Back to the Ban
News of the ban came in the form of an official bulletin from India’s parliament which describes the bill’s primary goal as creating a “framework for creation of the official digital currency to be issued by the Reserve Bank of India” — which is to say, a central bank digital currency (CBDC).
Modi’s government has been very supportive of a digital rupee, which would be a digital currency in every way equivalent to the existing fiat currency. A pilot could come early next year.
See more: India Central Bank Eyes Digital Currency Trial Run in 2022
The same dynamic applies in China, which is far ahead of any large nation in creating a CBDC. The digital yuan has had many large-scale tests, and the government has said it plans to launch it in time for the Beijing Winter Olympics in February.
Along with the CBDC news, the bulletin said the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 “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.”
That means it won’t keep Indian companies from using any blockchain technology, but speculating in cryptocurrencies won’t be allowed.
The current bill — or at least a version of it — was postponed after being scheduled to be taken up in March, The Economic Times reported in May. That came as Indian officials took a second look at cryptocurrency trading.
“We want to make sure there is a window available for all kinds of experiments which will have to take place in the crypto world,” Finance Minister Nirmala Sitharaman said at the time. “It is not as if we are going to look inward and say we are not going to have any of this. There will be a very calibrated position.”
She added: “Mixed messages are coming across the world. I don’t think there is a complete go this way or that way in this matter. We will have to take a very calibrated position.”
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