Building a Regulatory Framework for Cryptocurrency

Author: Shradhanjali Sarma


Background

India’s cryptocurrency market has witnessed steady growth. With growing interest towards cryptocurrency, investments shot up from about $923 million in April 2020 to nearly $6.6 billion in May 2021. Amidst this burgeoning interest, India has struggled to put into place a regulatory regime in as much as the present legal framework provides for no clear definitions of cryptocurrency, crypto-assets and virtual currencies.

Owing to the global responses around cryptocurrencies, India too has taken measures to establish a regulatory framework. RBI’s primary concerns were regarding the absence of a central agency for regulation of payments, volatility of virtual currencies and the scope of illicit financial activity. The cautionary measures were soon replaced by stringent measures by RBI vide its circular dated April 6, 2018. The Circular directed all entities regulated by RBI to refrain from dealing with virtual currencies from immediate effect. The circular was challenged by the Internet and Mobile Association of India (IAMAI) before the Supreme Court.

On March 4, 2020, the Supreme Court after considering the submissions of the parties, held that RBI’s circular is liable to be set aside on the groundof proportionality. There was no adverse impactcaused by the use of virtual currencies, and hence such a ban was considered unreasonable. However, the Court did agree that RBI has jurisdiction to regulate virtual currencies as virtual currencyhas the potential of creating a parallel monetarysystem.

Recently, the Regulation of Official Digital Currency Bill, 2021 (Bill) was sought to be introduced in the Budget Session of the Parliament. The Bill intends to create a facilitative framework