The central government initially wanted to regulate the bitcoin sector but changed its stand due to objection from the Reserve Bank of India (RBI), reports Business Standard.
The Indian daily claimed that Economic Affairs Secretary Subhash Chandra Garg, who was heading the interministerial committee to study cryptocurrencies, favored regulating them. He looked at bitcoin as an “economical phenomenon” and believed monitoring it would yield better results.
The central government was initially in favor of "regulating" cryptocurrencies instead of imposing a Ban. DEA Secy Garg pressed for accepting virtual currencies as an economic phenomenon. According to Business Standard @someshjha7 #BitcoinSahiHai #IndiaWantsCrypto pic.twitter.com/QmmQWk53hS
— Sohail Merchant (@inkparadox) July 23, 2019
Garg, in the first committee meeting held on November 27, 2017, admitted that enforcing a ban on the cryptocurrency industry was difficult. He feared that the government’s crackdown on the emerging crypto sector would move the players underground, which would further lead to the use of cryptocurrencies in nefarious activities.
That allowed Garg to propose that the government treats cryptocurrencies like bitcoin as commodities or financial assets, minutes of the meeting showed.
RBI Recommended Complete Ban on Bitcoin
RBI did not agree with the proposals made by the Garg committee. In the next meeting held on February 22, 2018, the Indian central bank proposed a complete ban on bitcoin and other cryptocurrencies. That soon followed the release of a circular that ordered all the Indian banks to cut ties with cryptocurrency exchanges.
Business Standard noted that the RBI reached to its anti-bitcoin conclusion soon after Arun Jaitley, the Finance Minister of India at that time, said in the parliament that their government does not recognize bitcoin as legal tender. Jaitley also said that they would take all the measures to eliminate its use.
RBI Deputy Governor BP Kanungo and then Central Board of Direct Taxes (CBDT) Chair Sushil Chandra both supported Jaitley’s stance. Chandra said bitcoin favors “a chain of black money,” adding that exchanges used illegitimate techniques to lure inexperienced investors into purchasing the cryptocurrency.
However, Garg opposed those views. The bureaucrat reminded the regulators that G20 at that time was also looking into the matter. He also cited countries like South Korea that earlier attempted to ban bitcoin but later had to reverse their calls knowing that enforcing a ban on bitcoin was difficult. The minutes of the meeting read:
“Secretary (EA) said that the option of banning can be looked afresh and asked RBI and CBDT to prepare draft law which might be needed to be prepared in case banning option is accepted. Using cryptocurrencies in payment systems may be banned but not in its entirety considering the nature of technology.”
Ministry of Electronics and Information Technology Secretary Ajay Prakash Sawhney supported Garg, saying that India, being an IT-driven nation, cannot afford to lose innovations like cryptocurrencies.
The Missing Draft
The minutes explained that the committee prepared two drafts: one that favors a ban, and the other that support regulations. The ‘bitcoin ban’ draft appeared before the public for the first time on Monday. The draft that supported the regulating of bitcoin and other cryptocurrencies remains inaccessible.