The Indian Finance Ministry is grappling with identifying credible use cases for private cryptocurrencies, a crucial step for crafting an effective policy. As part of its strategy, the ministry plans to solicit feedback from stakeholders through a discussion paper by the end of September.
Current Challenges and Policy Development
A senior government official highlighted the challenge of framing a policy for cryptocurrencies without clear use cases. “There are no potential use cases today, which is a challenge in terms of framing the policy for bitcoin. Designing a policy needs potential use cases; otherwise, one tries to theorize and frame a policy on a hypothetical situation, which makes policymaking more difficult,” the official said.
Background and Previous Actions
Cryptocurrencies in India have faced significant scrutiny. In April 2018, the central bank banned lenders and financial intermediaries from engaging with crypto users and exchanges. However, this ban was overturned by the Supreme Court in 2020.
In 2021, the government drafted a bill proposing a ban on private cryptocurrencies, but the bill has yet to be introduced. The finance ministry is now actively seeking credible use cases from stakeholders to inform its policy approach.
Wider Policy Review
Currently, an inter-ministerial group is working on a broader policy framework for cryptocurrencies. The ministry aims to gather perspectives on potential use cases to ensure a balanced approach in policy formulation.
The official emphasized, “If we do policymaking only from the perspective of risk, the policy will have different contours. One has to weigh risk versus benefit and maintain policy balance. If I see only risks, and benefits are not visible, the policy will be more towards risk prevention. That’s why we are trying to understand use cases with stakeholders.”
Discussion Paper and Future Steps
In July, Economic Affairs Secretary Ajay Seth indicated that India plans to release a discussion paper by September outlining its stance on cryptocurrency regulation. This paper will seek comments from relevant stakeholders and will suggest regulations for cryptocurrencies in India.
The discussion paper is intended to facilitate a comprehensive understanding of the potential benefits and risks associated with cryptocurrencies, helping to shape a well-rounded policy.