Bitcoins are internationally exchangeable into foreign currency of different countries and to some extent even in India. Hence at a time when the Government may be trying to force foreign Governments to share information on Benami Bank accounts in foreign Banks, it is natural that Bitcoin appears to be a good commodity to hold black money.
The recent raise in exchange rate of Bitcoins indicates such a the possibility that black money owners are migrating from other assets to Bitcoins. It is interesting to note that between November 8, 2016 when demonetization was announced and today, Bitcoin has appreciated from around $713 to $1155. This price movement is an international price movement and cannot entirely be attributed to Indian Black Money Diversion. However the possibility that Indian Blackmoney might have contributed to this cannot be ruled out.
RBI after its initial knee jerk crackdown on Bitcoin has softened its stand now and appears to be reluctant to take any action that is negative to the Bitcoin industry. At the same time, the technology behind Bitcoin namely the “Block Chain Technology” is often spoken about by official banking circles as a technology that can be used in the Banking industry. ICICI Bank even claims to have tried it out in some form.
It is however necessary for us to clearly distinguish between Bitcoin as an existing Crypto Currency and the “Block Chain Technology”. The official response should take cognizance of this distinction and accordingly RBI and the Finance Ministry needs to formulate appropriate policies before things get complicated.
Naavi has been advocating that India can consider starting its own Crypto Currency under the regulation of RBI itself where every Crypto Currency mined under this scheme will have the stamp of RBI and a record at RBI. This would be a useful “Digital Currency” to support our digital initiatives.
On the other hand, allowing Bitcoin to gain currency may not be a wise move since it is not a “Currency” in the traditional sense and as a “Commodity” it carries the baggage of being a currency of the underworld.
Legally, Bitcoin which is freshly mined in India is a valid electronic asset and can be exported for a clean profit. Similarly, buying Bitcoins from miners in India is also not unacceptable. The quantum of stock is however too small and most Bitcoin stocks are traded stocks where people buy and sell Bitcoins through different exchanges.
Technically, buying Bitcoins from international sources is an “Import” of a “Commodity” which needs to be examined for FEMA issues.
At present, Bitcoin has not been identified it as a “Commodity” nor as a “Currency”. It does not figure in the “Negative list” for imports nor in the white list of foreign currencies that can be exchanged by Authorized dealers.
Hence, importing Bitcoin could be considered not yet a clear violation of the import regulations. But at the same time, there is no guarantee that it cannot be ruled as a “Black Currency” in future either by RBI itself or by any Court.
Policy makers need to therefore consider if they should allow accumulation of Bitcoins by Indian residents or not, At the same time the economic impact of not regulating Bitcoin acquisition and trade in India and by Indian residents need to be evaluated and responded to.
If holding of the Bitcoins accumulate in the hands of honest citizens in India, there is a possibility that sooner or later it will be sought by those who have to pay ransoms to criminals or for use in funding terrorists. If an exchange market develops in India where Bitcoins can be sold and bought for rupees widely, terrorists and havala operators will use it to meet their requirements. Inevitably there after, Government will have to “demonetize” Bitcoins to ensure that there is no damage to the economy.
This could put the honest holders of Bitcoin into difficulty and force a sharp drop in its prices.
I therefore urge RBI and Government not to remain complacent , let Bitcoin stocks accumulate and subsequently force the Government to initiate a crack down. Such a move will adversely affect innocent citizens while the criminals and terrorists simply move off into another mode of funding.
Recently, I came across a situation where a person had sold bitcoin for Indian rupees only to find that the rupee was transferred to him from a hacked Bank account. When police contacted him, he had to part with the money to the account holder. But he could not take legal action against the fraudster since the asset (bitcoin) he had sold against the fraudulently acquired money was gone to the anonymous world of Bitcoins. He had received Indian rupees which was part of a fraud and had to face the criminal charge of having been an accomplice though by innocence. Since the commodity dealt with has no recognition either has currency or commodity law may neither protect such persons nor help them take action against the real fraudsters.
I therefore feel that lack of regulation of Bitcoins is more harmful than a benefit to the community of honest citizens who may buy Bitcoins as an investment attracted by the sharp gain over the past few months.
One way to ensure that genuine holders of Bitcoins who have imported Bitcoins from their hard earned money are not subjected to problems on a later date, is for RBI/Government to regulate Bitcoin import by restricting its imports only through “Authorized Bitcoin Changers” so that every Bitcoin transaction is reported to RBI.
Holders should also be required to declare their Bitcoin assets in the Income Tax returns and account for short term or long term gains.
By these twin measures, honest citizens who want to invest in Bitcoin may do so at their own price risks but without the additional risk of a Government crack down on the legality of the transaction.
If however, RBI does not consider Bitcoin acquisition by Indian residents as desirable, they should include “Crypto Currencies” in the negative import list or “Restricted Import list” so that requests can be handled on some reasonable criteria.
Doing neither….and drifting…. is not advisable.
Naavi
Pingback: I was on 16 and Going on 17….I need everyone….to know me and comply…says ITA 2000/8 - Naavi.org