India plans to prohibit Bitcoin and all other private Cryptocurrencies in the country except for the official digital currency issued by the Reserve Bank of India (RBI). Instead, the Indian government intends to introduce a “facilitative framework” for creating the country’s official digital currency at the current budget session of Parliament.
The Bulletin (Lok Sabha) introduced to Parliament reads that, although private Cryptocurrencies will be disallowed, “certain exceptions will be made to promote the underlying technology [blockchain] of Cryptocurrency and its uses.”
The government panel recommended that India ban private Cryptocurrency before in 2018, going so far as proposing that offenders serve up to 10 years of jail time. The panel, at that time, explored India’s own digital versions of currency – and how they would implement its use.
RBI said the measure to prohibit Bitcoin should mitigate the ring-fencing of India’s financial system.
Reactions to the Proposal – Then and Now
The 2018 proposal to prohibit Bitcoin was met with legal challenges by traders and exchanges who feared the threat to their livelihood. They filed a lawsuit in the Supreme Court and India’s apex court ruled in their favor in 2020. While the ruling was considered monumental, the earlier circular was not impacted on the policy level.
People sounded off on Reddit after hearing about India’s recent push to outlaw Cryptocurrency.
One person wrote, “This will disadvantage Indians trying to compete in the new global economic system. The harm could last generations.” Another quipped, “Best possible way to start a cryptocurrency black market.”
The ECB Weighs In
At about the same time India was discussing limitations on Cryptocurrency in 2018, the Board of Directors for the European Central Bank (ECB) announced their displeasure with the digital currency.
Board Member Yves Mersch spoke out at the OMFIF City Lecture, cautioning that central banks should monitor Cryptocurrency’s risks to price and financial stability.
Mersch said what was most concerning is, “that a crash in the cryptocurrency market may cause losses of wealth large enough to affect consumer behaviour or spread contagion throughout the financial system. The dangers of individuals and retail investors losing large amounts of money are real.”
The head of the Bank for International Settlements took a harder approach to Bitcoin that same year. He harshly labeled it “a combination of a bubble, a Ponzi scheme and an environmental disaster.”
Investors May Lose Everything
The ECB is issuing similar warnings today, warning that Bitcoin investors should prepare themselves to “lose all their money.”
ECB governing council member Gabriel Makhlouf said, “Personally, I’m not sure why people invest in those sorts of assets, but they see them as assets clearly.”
“Our role is to make sure that consumers are protected, ” Makhlouf added. His comments mirror skepticism for other ECB leaders. ECB President Christine Lagarde said this month that cryptocurrency is considered a “highly speculative asset.”
Since November, the prices of Bitcoin have more than doubled, topping $40,000 in early January. In fact, large swings are quite common. Also, in the past nine days, there have been swings of more than 5 percent.
Bitcoin Rallies Above $35,000 on Friday
Friday saw Bitcoin rally to above $35,000. Brokers attributed the surge to SpaceX CEO and Dogecoin supporter Elon Musk mentioning it on Twitter. Still, Council Member Makhlouf says he doesn’t foresee financial stability issues stemming from Bitcoin right now. He said he worries more about “consumers making the right choices.”
For another financial article like this, be sure to check out Robinhood Issues Statement On Trade Blocking.