inter-ministerial committee (IMC) that was set up to assess the viability of
virtual currencies has recommended that India should ban private
cryptocurrencies such as Bitcoin.
cryptocurrency is a subset of virtual currencies. It is decentralised, and
protected by cryptography. Example: Bitcoin, Etherum, etc.
virtual currency is a digital representation of value that can be digitally
traded. It functions as (a) a medium of exchange, and/ or (b) a unit of
account, and/or (c) a store of value. However, unlike fiat currency like the
rupee, it is not legal tender and does not have the backing of a government.
virtual currencies use Distributed Ledger Technology (DLT). It refers to
technologies that involve the use of independent computers (also referred to as
nodes) to record, share, and synchronise transactions in their respective
electronic ledgers. Unlike traditional ledger, data in DLT is not centralised.
like Bitcoin uses Blockchain technology- a special kind of DLT. A Blockchain is
a digital, immutable, distributed ledger that chronologically records
transactions in near real time.
the application of DLT is being explored in the areas of trade finance,
mortgage loan applications, digital identity management or KYC requirements,
cross-border fund transfers and clearing and settlement systems.
inter-ministerial committee (IMC) has recognised the potential of DLT and
Blockchain. It has recommended the Department of Economic Affairs to take
necessary measures to facilitate the use of DLT in the entire financial field
after identifying its uses.
it has also recommended that that regulators — RBI, SEBI, IRDA, PFRDA, and IBBI
should explore evolving appropriate regulations for development of DLT in their
it has called for a ban on private cryptocurrencies. It also noted that the RBI
Act has the enabling provisions to permit the central government to approve a
“Central Bank Digital Currency” (CBDC) as legal tender in India.
IMC has highlighted a number of concerns regarding private cryptocurrencies.
These are: a) non-official virtual currencies can be used to defraud consumers,
b) scaling up such a currency system over a large population would exploits
huge levels of energy resources, c) the RBI would lose control over the
monetary policy and financial stability as it would not be able to keep a tab
on the money supply in the economy, d) anonymity of private digital currencies
make them vulnerable to money laundering and use in terrorist financing
activities, e) there is no grievance redressal mechanism in such a system, f) transactions
are irreversible in such a system.