Cryptocurrency Ban: Example of Bureaucratic high handedness

Cryptocurrency News

It’s official now! A draft bill is prepared to ban cryptocurrency lock, stock and barrel in India. India, more precisely its bureaucracy, christened as ‘Inter-Ministerial Committee’, has submitted a bill which has not only criminalized the entire chain of crypto operation, but also wished to punish users for merely holding the digital currency. Putting it simply, persons may be put behind the bar, facing up to 10 years of jail term, for even keeping a bit of crypto assets with them!

The recommendations are the classic examples of bureaucratic high-handedness, to say the least. The complexion of the body, the way it conduced functions and sought to have a policy framework….  All points to a glaring void in the system, that is lack of wisdom.

A handful of bureaucrats, mostly devoid of sound knowledge in digital currency, has framed a policy based on knee-jerk reactions. No wonder, the draft bill lacks the right outlook and temperament, hence, missed the bigger picture. It is too myopic and signifies a generational gap.

While recommending the outlawing of cryptocurrency (termed as ‘non-official virtual currency’), through the draft bill ‘Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019’, the committee finds a few arguments handy. One, crypto is not real money, hence no intrinsic value. Two, its integration to the existing financial system is difficult. Three, mushrooming of cryptocurrencies. Four, crypto’s vulnerability to money laundering and terror financing.

“The Committee notes that non-official virtual currencies can be used to defraud consumers, particularly unsophisticated consumers or investors. Another concern from the use of non-official digital currencies is to the economy and the financial system with implications for monetary supply, particularly given their volatility and crippling use of resources including energy. The Financial Action Task Force has observed that on account of the anonymity associated with Virtual Currencies/ Cryptocurrencies, they are vulnerable to money laundering and use in terrorist financing activities while also making law enforcement difficult.”

The bill adds: “Thus far, both the Government and the Reserve Bank have been proactively informing the public on the potential risks of using cryptocurrencies, with the Reserve Bank also prohibits its regulated entities from facilitating transactions in cryptocurrencies. The Committee recommends that all private cryptocurrencies, except any cryptocurrency which may be issued by the government, be banned in India.”

The arguments sound lame and weak. Are the policy makers facing the same dilemma on a new instrument for the first time? Isn’t it quite natural that any instrument comes with its own pros and cons, and faces teething issues while integrating with the existing system? Isn’t it the responsibility of the bureaucrats to suggest remedies and build an eco-system instead of discarding an instrument like ‘hot potato’? Does the ‘mushrooming’ of a particular product or risky nature of its necessarily demand writing obituary for an asset? Can the government, conclusively prove that crypto assets are being used for money laundering or terror financing in Indian context?

Questions abound. However, the panelists have not tried to find all answers. They have chosen the easy way, forgetting the fact that regulation is the solution here, and not an outright rejection. They neither explored all avenues, nor valued the views of entire gamut of stakeholders before coming to a conclusion. No wonder, the wide range of crypto-participants, mostly Gen X, have been ignored completely as if they do not even exist. How can a policy is framed with no consultation with the participants?

The silver lining is that it is a draft bill. At the moment, this is nothing but a piece of document consisting of a few recommendations by a government-nominated body. In our parliamentary process, this draft bill has to go through a few more steps to outlaw cryptocurrency in India. The right approach for the government is to take a few judicious steps that would involve all stakeholders. Let the government officially invite feedback from all and sundry before making a final bill. If needed, let the bill go through parliamentary standing committee, a point that is raised by the committee itself. The policy framework should not be a hurried one, instead it has to adopt a futuristic approach to one of the most important game changing instruments of our time.