Virtual Currencies also called as digital or crypto-currencies, are a type of unregulated digital money that is not issued by a central or public bank and can be transferred, stored or traded electronically. It is created through encryption techniques. There are various kinds of virtual currencies like bitcoin, litecoin, primecoin, peercoin, namecoin and ether. Among these, bitcoin is the most famous. In India, there are many bitcoin exchanges and bitcoin mining companies. You also have an option to buy bitcoins from a website or an app. To buy, you have to sign up with any one of the websites such as Coinsecure, Unocoin, BTCXIndia or Zebpay. Next, you have to provide information such as your bank details and Permanent Account Number to buy bitcoins. Also, you have to use Net banking and pay using NEFT, RTGS or IMPS.
A Virtual Hope
Technologies are advancing and virtual money is fostering a globally accepted exchange mechanism. Digital money can be sent across borders without going through multiple intermediaries and currency swaps. If recognized, its value is the same regardless of where you do business and facilitate the faster flow of goods. More than 100,000 businesses are already accepting Bitcoin including many large companies.
Opening up trade
For global e-commerce to thrive, the movement of goods, funds and information must be both secure and seamless. Virtual currency could bring markets closer together and facilitate faster trade. Some bitcoin exchanges allow you to buy e-commerce vouchers, movie tickets and even make bill payments using this currency. Zebpay is one of the largest online bitcoin trading platforms in India. This is due to cultural traits that Indians don’t feel confident about money unless they’re holding cash in hand. But this perception will slowly change. ePaisa, which offers a mobile based application for card and cash payments started enabling its partner merchants to start accepting bitcoins as payment. Bitcoins will definitely improve financial inclusiveness as it will help the unbanked population and provide instantaneous and low-cost remittances.
The circulation of virtual currencies has become a cause of concern. Reserve Bank of India (RBI) has also cautioned all the users, holders and traders of virtual currencies about the potential financial, operational, legal, customer protection and security related risk. The move came due to apprehensions that black money hoarders may have resorted to virtual currencies and bitcoins to launder their cash after demonetisation. Bitcoins have been banned in several countries including Russia, on grounds that it could be used for money laundering or financing terrorism. To examine the existing framework, the department of economic affairs under the finance ministry has constituted an inter-disciplinary committee chaired by special secretary (economic affairs) and representatives from DEA, department of revenue (CBDT), department of financial services, home ministry, ministry of electronics and information technology, RBI, NITI Aayog and State Bank of India.
The Committee’s tasks are laid out as follows:
- Taking stock of the present status of Virtual Currencies both in India and globally.
- Examine the existing global regulatory and legal structures governing Virtual Currencies.
- Suggest measures for dealing with issues relating to consumer protection, money laundering.
- Examine other matters related to Virtual Currencies which may be relevant.
The committee is required to submit its report within three months.
Categorization of virtual currencies under Indian laws
- Virtual currencies have not been recognized by the Reserve Bank of India as a ‘currency‘ in India, although RBI does have the power to include virtual currencies within the definition of ‘currency‘. Currently creation, trading or usage of virtual currencies as a medium of payment is not authorized by RBI or any other monetary authority in India.
- The taxability of virtual currencies still remains a grey area, rendering the regulatory environment governing virtual currencies even more uncertain.
- From the perspective of foreign exchange control laws, purchase of virtual currencies by an Indian resident can be viewed as import of a software/computer programme into India, and requires compliance with applicable foreign exchange control laws including RBI’s Master Direction on import of goods and services into India with respect to imports being made in non-physical form.
- Use and trading of virtual currencies also raise privacy concerns including of protection of information and sensitive personal data and information of every individual dealing with virtual currencies.
RBI’S advisory/cautionary issued regarding virtual currencies
RBI has raised concerns over the usage of such virtual currencies and the potential risks associated with them. RBI in its Press Release Dated December 24, 2013 cautioned all the users, holders and traders of virtual currencies about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to. RBI further clarified that creation, trading or usage of virtual currencies as a medium for payment are not authorized by any central bank or monetary authority. It referred to several media reports of the usage of virtual currencies, including Bitcoins, for illicit and illegal activities such as users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws. RBI in its Press Release dated February 1, 2017, clearly stated that it has not given any license/authorization to any entity/company to operate such schemes or deal with any virtual currencies. RBI also said that the user, holder, investor, trader dealing with virtual currencies will be doing at their own risk.
- Virtual currencies as a medium of payment are not recognized under Indian laws and has no specific regulation governing virtual currencies introduced in India. RBI has not declared dealing in virtual currencies as illegal nor has it introduced any regulatory framework governing virtual currencies. There are a few entities in India which are operating as Bitcoin exchange or trading platforms dealing in buying, selling, using, storing and accepting Bitcoins such as Zebpay, Unocoin and Coinsecure.
- RBI from time to time has issued cautionary advisories to the public stating that creation, trading or usage of virtual currencies as a medium of payment is not authorized by it and no regulatory approvals, registration or authorization have been obtained by the entities carrying on such activities. RBI has also stated that it is examining the issues associated with the usage, holding and trading of virtual currencies under the legal and regulatory framework of India.
- Presently virtual currencies are not per seconsidered ‘illegal’ in India under the regulatory regime due to lack of any legislation, regulation or guideline prohibiting or governing its use or trading. Union Minister of State for Finance cautioned usage of virtual currencies including Bitcoins for illegal activities such as money laundering and financing of terrorism.
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