Yet to make a final decision on digital currency regimes: SC

NEW DELHI Days after Reserve Bank of India (RBI) governor Shaktikanta Das expressed concern over the risk posed by cryptocurrencies to emerging market economies such as India, the Union government on Friday told the Supreme Court that the issue of digital currency is an “evolving one” and that the Centre is still to make a final decision on a proposed legal regime to regulate its transactions and provide for investigations.

The court clarified that it is concerned only about the misuse of cryptocurrencies, adding that it will be “very dangerous” if people were to create their own currencies and start transacting in the absence of a legal regime.

“We only want you to ensure safeguards as far as misuse is concerned. We are not experts in impressing upon you on what kind of currencies you should have or regulate...At the same time, it can be very dangerous if anyone can create any kind of currency and start transacting in it,” said a bench of justices Surya Kant and KV Viswanathan, giving the Centre four weeks to revert.

In July 2023, the bench directed the Union government to bring on record whether it intends to set up a federal agency to investigate criminal cases involving cryptocurrencies, terming it “unfortunate” that the Centre still does not have a law to regulate digital currencies, nor does it have an expert agency in place to probe such matters.

The court, on that day, implored the Centre to have a legal regime in place to handle cases involving cryptocurrencies; the bench rued that several innocent investors in the country are getting duped but there is no agency at the national level that can crack the code in cases involving a complex nature of transactions.

The court was hearing petitions filed by Ganesh Shivkumar Sagar (47), a resident of Delhi, booked in connection with cryptocurrency fraud cases in Maharashtra, Gujarat and Jharkhand. In one of his petitions, Sagar asked for bail while in another, he pleaded that all the cases against him could be entrusted to a central agency for investigation.

Attorney general R Venkataramani appeared in the case on September 21, stating that the matter requires in-depth consideration keeping in view the domestic and international perspective. The A-G submitted that due deliberations will be made within three months and the court shall be apprised of the outcome at the earliest.

On Friday, additional solicitor general Vikramjit Banerjee appeared on behalf of the Centre, pleading for some more time to conclude deliberations and file an affidavit with respect to the court’s queries on a comprehensive mechanism for effective investigation of the offences related to cryptocurrencies.

The hearing commenced with the bench clarifying that though it would not want to express any opinion on the regulation of cryptocurrencies, there seemed to be a specific opinion on the issue by “an important statutory body”.

“One of your statutory bodies has a particular opinion about this... Should we have the viewpoint of the RBI in the matter?” the bench asked Banerjee.

Responding, the law officer said: “It’s an evolving question and we don’t want to take any categorical stand at this moment...Like every technological tool, it may have its downside as well as upside.”

Banerjee said that the issue was being debated upon by the authorities. “There can be different views on it. There are some talking about free markets and then there are some others who question control over publication of currency by one body. There are multiple ideas...Give us some time...we will put together everything on an affidavit,” the ASG submitted before the bench, which accepted his request.

This month alone, RBI governor Das has on two occasions conveyed India’s apex banking regulator’s disinclination to green-light cryptocurrencies. On January 11, speaking at the 16th Mint Annual BFSI Summit and Awards in Mumbai, Das maintained that the central bank’s position on cryptocurrency remained unchanged. “Travelling down that path will create huge risks. I don’t think the world or emerging markets (EMs) can take a crypto mania like the tulip mania,” Das said, referring to the 17th century boom and bust in Dutch tulip prices, regarded as one of the most infamous asset bubbles in history.

Speaking at the World Economic Forum in Davos earlier this week, Das cautioned investors, raising concern about the potential harm these “instruments with no underlying value” pose to emerging market economies. He emphasised that India’s regulatory approach would not simply mirror other countries’ decisions, referring to the US Securities and Exchange Commission’s recent approval to bitcoin exchange-traded funds.

In 2022, the central government announced it will tax all virtual digital asset (VDA) transactions at 30%. In her Union budget speech on February 1, 2022, finance minister Nirmala Sitharaman added that the Central Bank Digital Currency (CBDC) will be introduced in 2022-23.

While some in the industry suggested that the move gave a semblance of legitimacy to the crypto sector at large, Sitharaman strongly disagreed with that conjecture. Replying to the general discussion on the Union budget, the minister on February 11, 2022, said there was no decision on granting legitimacy to cryptocurrency.