The Indian government has tabled a parliamentary bill which would seek to ban private cryptocurrencies.
The draft legislation, however, aims to “create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India”.
The bill will allow for certain exceptions to the ban to “promote the underlying technology of cryptocurrency and its uses”, the government said.
Laith Khalaf, head of investment analysis at AJ Bell, said: “India’s plan to ban cryptocurrencies has not wrought the same damage on the Bitcoin price as China’s summer crackdown, but it nonetheless marks yet another stumbling block in crypto’s advancement as an economic force in the real world.
“The wording of the Indian government’s announcement suggests there will be some exceptions to the ban in order to promote the underlying blockchain technology, though it’s not presently clear what those might be.
“There may be some question of how the government can prohibit the trading of cryptocurrency on private computers across international exchanges, but a ban would at least prevent advertising and marketing activities, which should limit activity.”
Destabilisation of current financial system?
Khalaf added that there are two main concerns for global governments with the rise of cryptocurrencies: money laundering, and the impact it could have on consumers “if the price bubble eventually bursts”.
He said: “It seems inevitable that cryptocurrencies will continue to encounter either greater regulation or prohibition in more jurisdictions around the world, and El Salvador’s plans to build a city in the shape of a Bitcoin aren’t going to reverse that trend.
“Regulators may also have a third concern around the proliferation of private market crytpoassets, which is that they could ultimately usurp power from central banks. This would most likely be those issued in the form of stablecoins, pegged to an existing national currency, rather than something like Bitcoin, whose volatility makes it unsuitable as a store of value, or a medium of exchange.
“Perhaps that’s why, alongside the plan to ban private cryptoassets, India announced it will be launching its own digital currency.
“In common with many other central banks, the Bank of England is also looking at issuing a digital pound and will be consulting on the subject next year. National digital currencies could bring benefits for consumers in terms of transactional speed and charges, but central banks who go down this path will need to tread very carefully, so that they don’t destabilise the existing financial ecosystem.”