The Crypto Rupee

The proposed “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” (Crypto Bill-2021) is expected to “Prohibit” private crypto currencies and also enable issue of a RBI controlled Crypto currency.

Knowing the power of corruption, we need to wait until the final act is notified to understand the real nature of the regulation. There could be several “loopholes” specifically introduced to protect the fraudulent intentions of the Crypto operators.

Just as we can have a law to regulate drug abuse saying that “LSD use is banned but can be used under prescription of a medical practitioner” which is sufficient for the drug industry to proliferate, it is possible to create “Exceptions” that effectively negate the “Prohibition”.

We hope that the Government has no such malicious intentions of cheating the honest citizens by a clever manipulation of the provisions in the Bill.

Leaving behind this doubt, let us now look forward to the developments that we may see in implementing the regulation as all honest citizens now understand.


There are two important parts to the Bill. One is the “Prohibition of all Private Crypto Currencies” and the second is “Legal Empowerment of an official central bank controlled “Crypto INR” (CINR).

Listening to some TV debates yesterday, I understand that there is some confusion about what is a “Private Crypto Currency”.  What we need to understand is that “Private Crypto Currency” (PCC) refers to all the Bitcoin, Etherium, Dogecoin , etc where the block chain is controlled by a form of syndicate which is largely anonymous. Such currencies are completely out of control of any sovereign Government and the value is not backed by any sovereign guarantee. The value of such currency is only dependent on the public sentiment and the perceived shortage occurring because  of the scarcity factor.

PCC s also  includes Initial Coin offerings like  Libra where there may be an identifiable “Promoter”. It also includes the currencies like Linden used in “” or similar other entities and internet games. These may carry some form of assurance from the owner of the website promoting the currency but not any form of sovereign guarantee. For example, the Lindens we may acquire in may be convertible into dollars but if for some reason the exchange rate is unrealistically modified or exchange is suspended, it becomes a change of rules in the game and a contractual default.

“Non Private Crypto Currencies” refer to Crypto Currencies issued by sovereign Governments with sovereign backing. CINR would therefore be a sovereign Crypto Rupee backed by the Central Bank of India . Similarly CUSD would be a Crypto US Dollar and CEURO would be the Crypto Euro and CAUSD would be Crypto Australian dollar, CGBP the Crypto Great Britain Pound, etc.

All these “Non Private Crypto Currencies” may also be referred to as “Sovereign Crypto Currencies” or SCCs as distinguished from PCCs.

We understand that one of the objectives of the new Bill will be to enable the issue of an official crypto currency which in some circles are referred to as CBOD (Central Bank controlled official digital currency). We however prefer to call it a CINR since the term “Digital Currency” does not reflect the crypto nature and could be applied to any form of virtual currency including the dematerialized bank balance.

There is no Need for a new law for CINR

The first point that we need to note is that there is no need for a new law to enable RBI to issue a CINR. Currently RBI has the exclusive power to issue a “Currency”.

In terms of Section 22 of the Reserve Bank of India Act (1934),  Reserve Bank has the sole right to issue banknotes in India. Section 25 states that the design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by the Central Board of RBI.

Section 22 of RBI act states:

(1) The Bank shall have the sole right to issue bank notes in India, and may, for a period which shall be fixed by the Central Government on the recommendation of the Central Board, issue currency notes of the Government of India supplied to it by the Central Government, and the provisions of this Act applicable to bank notes shall, unless a contrary intention appears, apply to all currency notes of the Government of India issued either by the Central Government] or by the Bank in like manner as if such currency notes were bank notes, and references in this Act to bank
notes shall be construed accordingly.

(2) On and from the date on which this Chapter comes into force the Central Government shall not issue any currency notes.

Section 25 of RBI Act states:

The design, form and material of bank notes shall be such as may be approved by the Central Government after consideration of the recommendations made by Central Board. 

Under Section 26 of the RBI Act,

“…every bank note shall be legal tender at any place in 4[India] in payment or on account for the amount expressed therein, and shall be guaranteed by the Central Government…. “

RBI Act also prescribes criminal punishments including imprisonment upto 3 years and fine.

Hence the sole right to issue any instrument which is used or intended to be used or advertised to be used as a “Legal Tender” is the sole right of the RBI.

If by calling Bitcoin as a “Currency”, the industry is mis-representing the public, the persons responsible can be punished under the RBI Act as well as IPC (For cheating).

The very name “Crypto Currency” indicates the nature of Bitcoin and other crypto currencies as meant to be  used as a “Currency” or a “Legal Tender” as an exchange of value. Hence it is not possible to consider a “Crypto Currency” as a “Crypto Asset not being a currency”.

Had the Crypto community maintained a consistent promotion since 2013 that “Bitcoin is a Crypto asset and not a currency” as was suggested by the undersigned, they would have been morally in a better state of mind today to defend that “Bitcoin” is a separate “Class of assets”. They chose to exploit the benefit of the tag as a “Currency” and hence have to face the liability arising therefrom.

Hence without a sovereign backing any instrument which can be directly or indirectly called a “Crypto Currency” is an offence under RBI Act 1934 with or without the new Bill.

Similarly, since Information Technology Act 2000 (ITA 2000) recognizes under Section 4 that

” Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is (a) rendered or made available in an electronic form; and (b) accessible so as to be usable for a subsequent reference”

The digitally printed electronic document including a CINR is recognized as if it is a digital form of a Bank Note.

However, under Section 1(4) of ITA 2000, certain types of documents are exempt from ITA 2000 and such document includes

“A Negotiable Instrument (Other than a cheque) as defined in  Section 13 of the Negotiable Instruments Act 1881 (26 of 1881)”

According to Section 31 of the RBI Act

No person in India other than the Bank, or, as expressly authorized by this Act the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand, or borrow, owe or take up any sum or sums of money on the bills, hundis or notes payable to bearer on demand of any such person: Provided that cheques or drafts, including hundis, payable to bearer on demand or otherwise may be drawn on a person’s account with a banker, shroff or agent. 


Notwithstanding anything contained in the Negotiable In­struments Act, 1881, (26 of 1881) no person in India other than the Bank or, as expressly authorised by this Act, the Central Government shall make or issue any promissory note expressed to be payable to the bearer of the instrument.”

In view of the above provisions, a digital currency is not recognized under ITA 2000.

However, if the notification of Schedule 2 of ITA 2000 can be suitably amended (notification has to be placed before the Parliament subsequently for approval), it is possible that para (1) of the Schedule 2 of ITA 2000 can be amended to include digital currency as a recognized instrument.

Once this amendment to the notification is carried out, RBI will be free to issue the “Digital Currency” in any form. Crypto INR will therefore be a “Digital Bank Note” within the powers of RBI to issue and manage.

The security features and the procedures for issue, regulation of certification and even demonetization is entirely within the powers of RBI without the new Bill.

Crypto INR Structure

CINR is an electronic document which recognizes a certain value say equivalent to Rupee one. It contains some material information such as that it is issued by RBI with a certain serial number.

This information can be encrypted and endorsed by a set of “Private RBI Nodes” each of which represent official authority to issue and keep a record. While the printed Bank note is signed by the RBI Governor, the Crypto Bank note can be digitally signed by the Governor and further confirmed as an issue transaction by a few of the officials from the Note Issue department.

The issue process can be built on this small private block chain. There is no need for a public block chain and a public mining activity.

The CINR is unlikely to assume the imaginary values like the Bitcoin since the supply may be unlimited and there is no hiding from tax entities. At best it may carry a premium of convenience.

The RBI will save on the cost of “Printing of Notes” and the difficulty of protecting fake currency of high quality from enemy countries.

There is also a possibility that the flow of CINR can be tracked on how the currency moves in its life time.

This could be a privacy issue but can be handled separately with anonymization.

Further, it should be possible for the CINR to be equipped with a de-monetization switch so that if and when it is necessary to demonetize the CINR, it could be done at the central server avoiding all the difficulties we encountered in the physical currency demonetization.

The last issue that we need to take note that the security of the system now moves from the Currency printing press to the Central server that hosts the CINR block chain. Since the block chain ledger has an inherent duplication and secured by the highest level of encryption and decentralized location, it should be possible to secure the CINR block chain effectively.

The New Bill

Though it would have been possible to introduce CINR with the use of RBI Act read along with ITA 2000 and a modified Schedule 2 of ITA 2000, the Government has chosen to pass a separate law. This will perhaps provide greater clarity to those who never  understood ITA 2000 in the last 21 years and were blind to many of its provisions. Also some of the procedures regarding security and management of CINR can now be part of this new Act and will have a statutory force like the provisions on Bank note procedures in the RBI Act.

(Comments are welcome)

Reference Articles
India Today

We need to ban Bitcoins. But do we need a Digital Rupee?.., February 2, 2021

E Rupee is a re-invention of Naavi’s DVIIS…, August 11, 2021

Black Money Control…. ZeMo-INR as an instrument of implementation. January 20, 2014

Bitcoin is Digital Black Money…Why?…, June 15, 2018

Bitcoin Regulation…. What the Government needs to do… May 24, 2017

Open Letter to Madam Nirmala Sitharaman…. Say No to experimentation…. It will be misused…  March 6, 2021

About Vijayashankar Na

Naavi is a veteran Cyber Law specialist in India and is presently working from Bangalore as an Information Assurance Consultant. Pioneered concepts such as ITA 2008 compliance, Naavi is also the founder of Cyber Law College, a virtual Cyber Law Education institution. He now has been focusing on the projects such as Secure Digital India and Cyber Insurance
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3 Responses to The Crypto Rupee

  1. Anika says:

    Thanks for the information. This is very nice blog. Keep posting these kind of posts. All the best.

  2. Coins Folks says:


    Nicely explained crypto structure part.
    I like it.

  3. Kiran Kumar says:

    Your article so information about cryptocurrency in India was prohibited bill, and also start digital currency as a crypto rupee.

    very useful article related to crypto investors.

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