Why finance ministry panel said no to Bitcoin and other virtual currencies

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New Delhi | Published: August 2, 2017 7:30 AM

Asks government to take immediate steps to warn people to stay away from virtual currencies

finance ministry panel, Bitcoin, virtual currencies, RBI , Amazon, Flipkart, VC intermediaries,  Coinsecure, ZebpayUnprecedented increase in value of VCs like Bitcoin in the past one year, can expose people to huge financial risks, the blame of which will ultimately land at the door of the government. (PTI)

A panel, formed by the finance ministry in April to suggest measures to deal with virtual currencies (VCs), has recommended the government to take immediate steps to stop use of VCs such as Bitcoins to protect people from potential frauds and curb money laundering, sources told FE. If use of VCs still continues, the government can consider bringing in a legislation to stop transactions via VCs at commercial establishments, curb activities of VC intermediaries, etc, sources told FE.

Unprecedented increase in value of VCs like Bitcoin in the past one year, can expose people to huge financial risks, the blame of which will ultimately land at the door of the government. The panel suggested that the government should launch a campaign to discourage people from buying digital currencies and stop advertisements by VC intermediaries. “This does not have any legal sanctity. VC intermediaries have been advertising regularly… the government silence can be construed as permission for such activities,” an official said, suggesting an end to years of wait-and-watch policy.
Before finalising its report, the panel sought views from the public as well as from the cryptocurrency start-ups. The panel, however, did not recommend a blanket ban on digital currencies, as it is difficult to implement.

Bitcoin essentially operates on a peer-to-peer basis. It is both a digital asset and payment system, the users of which can transact directly among themselves without a banking intermediary, bypassing regulators as well.The currency in itself is generated through a computer software, which ‘mines’ a certain value of this digital currency, transfers it directly among users and maintains records on a distributed ledger powered by blockchain technology. The panel mentioned above, comprised of members from department of economic affairs, income tax department, ministry of home affairs, RBI and market regulator Sebi. It was formed after RBI cautioned people in February that no entity has been authorised to operate virtual currency schemes.

“Using the coin for transactions are fraught with dangers of sudden value erosion,” another official said. There were also concerns with regard to money laundering using VCs.The latest RBI warning seems to have been prompted by the surge in the price of Bitcoin after demonetisation — from about Rs 40,000 a piece in October 2016 to about Rs 1,78,170 now. There are several exchanges like Zebpay, Coinsecure and Unocoin which provide platforms to users in India. Globally, Bitcoin surged to an all-time high of about $3,000 per unit recently, more than doubled in value over the last three months, spurring talk of a bubble. The digital currency has been deemed a legal means of payment in Japan while the US has recognised it as a commodity. The global circulation of Bitcoins are estimated to be worth $46 billion, nearly half of the total VCs under circulation.

Though the volume of Bitscoin transactions are very low in India, the number of users have shot up to over 10 lakh from below 1 lakh a year ago. Besides fund transfers from overseas, users in India can use Bitcoins from buying pizza and movie tickets to shopping on Amazon, Flipkart, Freecharge, Bookmyshow and Makemytrip. If the government accepts the panel’s reccomendations, it will be a body blow to cyrptocurrency start-ups.

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