In July, DEA’s report on Virtual Currencies recommended a complete ban on Cryptocurrencies. But, DEA’s 2019 report from Steering Committee on Fintech Related issues acknowledges the potential of Cryptocurrencies, Blockchain and ICOs.
The Steering Committee on Fintech related issues constituted by the Ministry of Finance, Department of Economic Affairs submitted its Final Report to Finance Minister Nirmala Sitharaman. The report is published on DEA website.
The Committee was constituted post the announcement made by the former Finance Minister, Shri Arun Jaitley in his Budget Speech 2018-19. The report outlines the current landscape in the Fintech space globally and in India, studies the various issues relating to its development and makes recommendations focusing on how fintech can be leveraged to enhance financial inclusion of MSMEs with a view to making fintech related regulations more flexible and generate enhanced entrepreneurship.
Within the report, there is a section on Blockchain, DLT and Cryptocurrencies – Digital tokens.
Blockchain and Distributed ledgers
The report acknowledges the distributed ledgers make markets of virtual currencies like Bitcoin, but DLT has potential applications beyond the “realm of cryptocurrencies”.
The committee takes note of Blockchain’s use cases such as cross border payment, trade finance, securities settlement and use of Smart contracts.
Within the cross border payment use, it also acknowledges “use of digital tokens resolve the issue of multiple currencies, improves liquidity and capital compliance costs, allows for micro-payments and expedites the payment process, which further eliminates liquidity risks.”
Digital Currencies and Tokens
The report defines cryptocurrencies as “decentralized peer-to-peer payment networks” They rely on cryptography to facilitate and record transactions on a set of electronic ledgers, which removes the need of a central authority to oversee the transactions.
Furthermore, the report acknowledges that “mechanisms surrounding cryptocurrencies, particularly the Blockchain and Initial Coin Offerings (ICOs), are revolutionising the global fintech landscape”.
Aanchal Thakur, managing partner at DayOrg Consulting Group says this is the first time a government body has defined digital currencies or tokens. Thakur points out that there is nothing negative written in the report about cryptocurrencies.
“There is no negative explanation or interpretation around Cryptocurrencies or tokens in the report. This seems to be a genuine effort by the steering committee to understand and explain the technology and global regulations surrounding the cryptocurrency landscape.”Aanchal Thakur
Utility Tokens, Security Tokens, Not Money
The report further divides Cryptocurrencies into two categories – Utility tokens and Security Tokens. Both utility tokens and security tokens are explained taking global cues and US SEC guidelines.
For instance, utility tokens are compares to digital coupons, while Howey test is cited to determine any token as a security token.
It is important to note that the previous reports by DEA or RBI never acknowledged the use of Cryptocurrencies as anything but a monetary system. This report is starkly different from anything published by any government body on the matter.
The report was prepared under the guidance of Subhash Chandra Garg, former DEA and Finance secretary who also headed the inter-ministerial committee on Virtual currencies. He even acknowledged his involvement via a tweet.
Along with him, Ajay Prakash Sawhney, secretary Meity is a signee in the Steering committee report as well as the IMC report on virtual currencies.
The report is also signed by representatives from MSME, UIDAI, RBI, CBIC, SEBI, Invest India and K Rajaraman from DEA signed as the convenor.
Moreover, the report also acknowledges the consultation and inputs taken from 31 industry participants including IAMAI, NASSCOM, GSTN, Facebook, Phone Pe.
No Recommendations on Virtual Currencies
Although the report says nothing negative about cryptocurrencies, acknowledges its importance, the report has no policy recommendation on digital currencies.
The report recommends several policy changes and improvements in the Fintech, agritech, regulations, securities, drones, artificial intelligence, legal processes, land records, support for new businesses, KYC, tech enabled regulations, consumer protection, micro financing, multinational cooperation and many more but not virtual currencies.
For the Crypto fans in India, September 25 is an important date as it may be the final day of arguments in the matter of Crypto vs RBI. The apex court has ordered the RBI to respond to IAMAI’s recommendation on Crypto regulations.