The period for which the Government of India sought public opinion on Bitcoin regulation is coming to an end tomorrow May 31, 2017.
What will happen next? is the question on the minds of most of the observers who are following the developments.
On the MyGov.in site where the opinion is being collected, there are more than 3200 comments at this point of time. The Bitcoin industry took this as an opportunity to flood the forum with comments from their supporters and since one of the main stake holders was an advertising firm more than a “FinTech Firm”, it was not difficult to gain a numeric majority for the Bitcoin supporters on the forum.
Now it is for the Government Committee of unknown members to take a decision on
a) Whether Bitcoins (and other Crypto Currencies which the committee calls as virtual currencies) should be banned, or regulated or observed?
b) If it has to be regulated, how should it be regulated?
We must appreciate that the Government actually sought public opinion. However, most people were unaware of it until, the Bitcoin community itself came up with what could have been a planted report in Business Standard that Government is unlikely to ban Bitcoins. It is intriguing to note why the article was published. Probably, it was to create a support base for the decision in that direction which the Committee was expected to take. But at the same time, it has also alerted those who consider that Bitcoin is the “Currency of Criminals” and particularly as “Currency of Terrorists”.
Can anybody deny that ransomware attacks normally demand payment in the form of Bitcoins?.. and after the recent WannaCry attack, the exchange rate of Bitcoins spiked?..indicating the direct relationship between Cyber Crime and Bitcoin.
Mr Modi took a bold decision to demonetize the Rs 500 and Rs 2000 currency notes because there was not only a huge hoarding of Black money in these denominations but also because there was a huge quantity of fake currency in these denominations pumped in from Pakistan.
There is no doubt that even Bankers are unable to identify fake currency in their midst and many ATMs were dispensing fake currency to the unsuspecting public. I have personally heard from an ex-Banker that his manager was forcing him to dispense identified fake currency in the Bank to the customers across the counter by mixing it up so that he would not have to personally bear the loss. This is one of the reasons that the total demonetized currencies returned to the system exceeded the RBI’s original estimates and it stopped giving information on the amount of demonetized currencies that were surrendered.
Now the Government is conducting separate enquiry on more than 60,000 cases of deposits of old currency as to whether they were clean or unaccounted.
At this point of time, Bitcoin holds itself as the better alternative for holding Black money for all those who can surrender their unaccounted money to havala operators or Bitcoin exchanges which accept cash against purchase orders. In fact Bitcoin is also the instrument that havala operators themselves can use to shift currency from one country to another and from one currency to other.
If we go through the My Gov feedback, there are admissions by many that they have been using Bitcoins to send in remittances from foreign countries to India instead of routing it through banking channels. I am also informed (unconfirmed) that ICICI Bank itself provides such transfer from Gulf.
It is therefore no rocket science to imagine that the support of Bitcoins will come strongly from all those who want to keep their money away from the eyes of the regulator.
Many honest persons who are not criminals I refer to when I speak of Bitcoins and some of whom are in my personal friend’s circles, think that a “Decentralized Monetary Control” that Bitcoin represents where no Government can exercise control is actually good for the global economy. They even hold out an argument that if US Dollar dips or INR loses value, Bitcoin can preserve their wealth better than what Gold can do.
When many respondents in the MyGov site say that Bitcoin should be legalized for the betterment of the Digital India and make an appeal to Mr Modi, I am certain that they are really not understanding what Bitcoin is, how is it different from the digital payment systems such as BHIM or UPI and what will be the consequence of Bitcoin usage as a replacement of currency.
For the sake of argument, let us assume that 100% of Indians convert their Bank balances into Bitcoins… What will be the scenario ahead?
Then Banks will have “Zero Balance” with them since all the deposits will get converted into Bitcoins. They will not be able to lend one rupee to any person.
If Banks say they will accept Bitcoin deposits, then all the current Bank deposits will get transferred to an “Inflated Bitcoin” which would cost something like US$ 10000 per BTC. There will be no SLR investments or CRR deposits wtih RBI and RBI itself will go bankrupt since it would not be able to pay its financial debts to foreign countries.
Government does not know how much of taxable income Indians get because service providers and product sellers receive their payments in Bitcoins and not through the Bank accounts. There will be no GST nor VAT or IT. Government will not have any revenue to run its affairs. All Government servants will not receive their salaries since Government will not have any income.
The Bitcoin holdings will be fungible against any foreign currency as it can be simply withdrawn as US dollars or Japanese Yen while the initial deposit is in Indian Rupees. There will therefore be no foreign exchange regulation in India and since there will be no demand for INR against Fiat currencies like US dollars or Euros, INR gets devalued into nothing. The foreign debt will jump and FDI will vanish.
Since no trade gets recorded, the GDP of the country will plummet to near Zero and the World Bank and Credit Rating agencies will dump India from any international financial commitments.
Pakistan and China will be happy since Modi’s dream of not only 2030 but even 2019 would go for a toss.
Arvind Kejriwal, Rahul Gandhi, Mamata Bannerjee, Sitaram Yechury Omar Abdulla and all the Hardik Patels and Kishan Kannaiha’s dreams of “Breaking up India” would be easily realized.
We also feel that the ISI and Naxalites would use Bitcoins to fund their terrorist operations and hence Bitcoin would become a currency of convenience to criminals and terrorists of all kinds. India will therefore hurtle towards destruction much before 2019 when Mr Modi will seek re-election.
Is there any dooms day prediction worse than this for India?
Well I am sure that we all understand that the above scenario is not desirable and hence we cannot allow usage of Bitcoins as an alternate to holding rupees.
The above situation is considered hypothetical only because not all the 100% of currency users would convert their holdings into Bitcoins. Your neighborhood vegetable vendor will say he wants cash.
But the direction in which the economy will move is clear. It will be towards less cash and less INR usage. But we cannot debate if 10% of the above doomsday implications is tolerable or some thing lesser.
Bitcoin problem is like drugs.
Say No to Bitcoins every time…..even the First Time
There are many who oppose the “Say No To Drugs” campaign, and there will also be many who will oppose the Say Not o Bitcoins campaign also. There are many who say that the “Say No to Drugs campaign did not succeed” . They are saying that “Bitcoins cannot be banned” because it has already been embraced by many foreign Governments and many Indians. hence, they will say tht “Say No to Bitcoins” campaign will also fail.
We should remember that when we try to ban Bitcoin there will be a shift of present Bitcoin holdings into other 700 odd alternate Bit coin lookalikes which are “Privately Created and Controlled Crypto Coins by various names including a few already being touted as an Indian version many of whose supporters can be identified ont he MyGov platform.
But let us remember that Modi’s India is not the same as any other India we know. If Mr Modi cannot be fooled by the Committee of the Finance Ministry into believing that Bitcoin is either good to be retained or we need to defer a decision for another few years, then I think the days of Bitcoins will be numbered.
No strategy works better in eliminating one vice than replacing it with an alternative that is preferably not harmful. Like, giving up smoking can be achieved by a Nicotine Chewing Gum, Bitcoin Ban can be effectively achieved if we divert the current interests in Bitcoins to a “Crypto Currency” which is fully under the control of RBI which is having a legal mandate to manage the currency system in India.
I am therefore suggesting an immediate Ban of all Private Crypto coins by the Government clarifying in no uncertain terms that
“Holding, Buying, Selling of any form of Crypto Coins other than what may be specifically approved by RBI, by any person whether or not he is a Citizen or Resident of India shall be considered illegal and punishable with imprisonment”
“If any person of Indian nationality or origin acquires any Crypto Coin through a process of Mining, he shall declare the holding immediately (not later than 3 days) to a designated authority and surrender the same against INR at the then prevailing exchange rate.
“If any person possesses any Crypto Coin as of the date of this notification, he shall immediately (not later than 3 days) declare it to the designated authority and surrender the same against INR at the prevailing Exchange rate along with a declaration as to the source of funds from which the Crypto Currency was acquired”.
“Where the person who surrenders the Crypto Currency may not be able to satisfy the authorities as the source of income form which they were acquired, Government will impose a tax penalty of not less than 25% with a further penalty of 10% for every month of delayed declaration”.
” All Exchanges operating in India who are providing services for buying and selling of any Crypto Currencies shall seize their operations forthwith and also send a complete list of transactions put through their exchange for the last 3 years in the relevant format to the designated authority.”
RBI may also add
“The designated authority proposes to start a Crypto Currency under its own control for which the details will be announced in due course”
(The designated authority for the time being could be the RBI)
As the next phase of activity, RBI may consider introducing a Crypto Currency which is under complete control of RBI where by from the generation of the Coin a tag will be placed on the coin and all transactions of the coin would be monitored .
The Mining of this coin (say Bit Rupee) can be done by pools started by and marketed by licensed Authorized Banks and the members would be registered Indian Citizens who will get paid a suitable reward and the mined coins would be the property of the Government.
This may not be a speculative currency like Bitcoin but would be a replacement of the currency printed by RBI.
It is also possible for RBI to consider a complete replica of Bitcoin where the miner will keep the mined coin to himself while he may pay a royalty to RBI. This will provide the transaction tagging but the economic impact of allowing a currency outside the legacy system has to be acceptable and therefore this may need further evaluation.
The above announcement will itself indicate the Regulations applicable for Bitcoins and other Virtual Coins as envisaged by the Committee.
It will also pave the way for further regulations which may be confirmed through the amendments proposed in the Payment and Settlement Act 2007 as recommended by the Watal Committee report.
If the Committee decides to continue “Observing” it will continue the uncertainty and it will only benefit speculative investments in which new investors may lose lot of money.
Also any decision not to ban Bitcoin and Private Crypto Currencies now, would mean that the Committee has ignored the points raised in this article, a copy of which is also being sent to the relevant authorities and would be followed up through RTI enquiries in the future as to on what basis the decision was taken.