FM's calibrated stance brews optimism, but Who'll regulate cryptocurrency?

Regulation Dilemma

- Experts say Centre may not go for a blanket ban on digital currencies

- So far, there's no clarity over regulation part on cryptocurrencies in India

- Experts suggest to Centre to include RBI, Sebi and IT dept

- RBI for payment mechanism for cryptocurrencies

- Sebi for monitoring it as a financial asset on exchanges

- And IT Dept for technology aspects

Mumbai: Even as the Union Finance Minister Nirmala Sitharaman has opened a Pandora's Box with her recent announcement that the central government is going to take a calibrated position on cryptocurrency, a lot of questions still remain unanswered - the most prominent among them is which financial regulator will regulate the virtual currency?

As of now, while Sebi regulates capital market, RBI monitors banks, whereas IRDAI and PFRDA regulate insurance and pension fund sectors respectively.

Until now, India has been lagging behind its counterparts like China and the rest of the world in the cryptocurrency adoption curve. The time has now come to maximise the potential of blockchain or fall behind in the global economic race.

Experts feel that the cryptocurrency needs to be regulated by both RBI and Sebi. Moreover, the Union Ministry of Information Technology (IT) will also have to be roped in to regulate it, they opine.

"A calibrated regulation framework for the sector will also help India align with global practices. This regulation can be designed in a way that RBI governs the use of cryptocurrencies as a payment mechanism while the Securities and Exchange Board of India (Sebi) can monitor their use as a financial asset, which can be bought and traded on an exchange," says Monark Modi, Founder & CEO, Bitex, a digital asset and cryptocurrency exchange.

The FM's stance on crypto trading norms reflects a judicious approach, which can boost cryptocurrency's potential of transforming India's financial technology landscape and acting as a hedge against uncertainties, such as the one raised by Covid-19. Looking at the Indian cryptocurrency market now and the growing investor confidence in the digital asset as an alternate investment class, it is an opportune moment for India to adopt a fresh outlook towards the regulation of the sector, he added.

The moot question now is whether the government is really prepared for this or will it take a long time to take a call on it. Some see virtual currencies becoming legal tender in the country in six to eight months.

Gaurav Mehta, founder, National Digital Asset Exchange (NDAX), says that as per FM's statement, the finance ministry might already have started coordinating with different stakeholder to draft Bill that takes 'calibrated' approach for technology innovation like cryptocurrency. It is still unclear whether cryptocurrency will be put under purview of RBI, Sebi or IT Ministry.

"I personally believe", he went on, "it will take not less than 6-8 months on ground as associated departments have to vet before draft is released to public or introduced in the Parliament." It is assumed that policy draft is going to be a collective work from various departments, not limited to RBI, Finance Ministry, Sebi, Ministry of Information & Technology.

Government should also be open to engage technology experts, crypto stake holders, regulation technology service provider and other departments like Ministry of External Affairs, Ministry of Home Affairs which can impact the growth of cryptocurrency, Mehta said.

The only thing which is crystal clear at the moment is that the government wants to ensure there is a window for experiments in the cryptocurrency space.

"The FM's stance on 'considering a calibrated approach' is an encouraging sign. We are a 100 plus staff company with some of the best talents emerging out of some of the premier institutes of India like IIT. We have the bandwidth, the data and resources to provide any assistance to the FM's endeavour in this sector. We believe crypto as an asset has huge potential and if properly administered can help India earn sizeable revenue," said Sumit Gupta, founder & CEO, CoinDCX, India's largest cryptocurrency exchange.

The crypto currency has a lot of employment related potential attached to it. JP Morgan recently posted new blockchain jobs in their Bangalore office. If a foreign company can create blockchain jobs in Bangalore, Made-in-Bangalore and Made-in-India companies can do the same a hundred times, the experts say. Moreover, ZebPay is shortly launching a new R&D department.

"We want to make sure that there is a window available for all kinds of experiments in the crypto world. We are really excited because we have a bunch of experiments planned. There is so much potential to use blockchain technology for the greater good," says Vikram Rangala, CMO, ZebPay. One thing is clear from the FM's statement. The Centre may not go for a blanket ban on digital currencies.