In its current form, Bitcoin presents different challenges to government authority: it cannot be regulated, it is used by criminals as it can be used for anonymous activities like terror financing, and it can help citizens overcome capital controls.
Until the time Bitcoin’s ecosystem matures, it will continue to be viewed with distrust by established authorities. Concerned about the potential for a digital-era bank run, The Department of finance govt of India is working on an oversight framework for the fast-growing sector.
To understand why governments worldwide are cautious about Bitcoin, it is important to understand the role fiat currencies play in a country’s economy. Fiat refers to conventional currencies issued by governments. Fiat currencies are backed by the faith and credit of a government. This means that the government’s promise to make the borrower of a currency whole, in case of a default.
Governments worldwide ease the role of central banks in an economy. While central banks make policies related to money, they do not have the authority to regulate how it can be used. That responsibility lies with the government and its policymakers. Through a number of intermediaries, such as banks and financial institutions, governments can distribute and regulate the flow and use of money in an economy. Thus, they can decide how it can be transferred across sectors where it is distributed, and trace its utility. Governments also earn revenue from it by taxing the earnings of individuals and corporations thereby controlling in whole.
It remains to be seen whether Bitcoin evangelists’ vision of a future without state regulation and taxation comes true. Meanwhile, governments around the world are trying to understand the effect that cryptocurrency might have on their economies in the near term. Specifically, they are concerned with the three problems presented by Bitcoin in its current form.
Reserve Bank of India governor Shaktikanta Das said that he felt that the number of participants who are said to be investing in cryptocurrencies may be exaggerated and there will be an effort made by massive unregulated marketing made by Indian exchanges to enroll as many people as possible without understanding the implications. He further said cryptocurrencies are a very serious concern for the central bank. The concerns are primarily based on macroeconomic and financial stability perspectives as bitcoin takes away the entire control from the government and policymakers. The central bank of India earlier this year has given its feedback to the government and made its concern clear. Meanwhile, finance minister Nirmala Sitharaman has overseen the draft formulation of the cryptocurrency bill which has been presented in the parliament, In the Union Budget 2022 “any income from transfer of any virtual digital asset( cryptocurrencies) shall be taxed at the rate of 30 percent.” “The new regime of flat 30% taxation on income from crypto assets from April 1, 2022.
The Central Board of Direct Taxes (CBDT) issued a clarification on 22 June on key issues. 1 percent TDS on the transfer of cryptocurrencies will be enforced from July 1. The responsibility of withholding this tax will be on the buyer, crypto exchanges, and brokers, depending on the type of transaction as this announcement is welcomed by industry participants and tax consultants.
The decisions have been taken after long-drawn consultation between the Reserve bank of India, the Home Ministry, and the Finance Ministry. Prime Minister Modi also held the review meeting on the same considering the global examples and best practices.
The Indian government is now looking to levy its goods and services tax (GST) on crypto transactions as well. A ministerial panel is expected to meet in the coming week to discuss the tax. The panel will have finance ministers from central and state governments in the country. Under the law, ministerial panels like the GST panel are formed in order to make recommendations to the GST Council, which takes final calls on this particular tax.
Pakistan’s Sindh High Court has earlier this year directed Imran Khan’s government to speed up the regulation of cryptocurrencies. It has given a deadline to Pakistan’s ruling government for submitting the proposed regulatory rules. With the new government formed in Pakistan, there has been a delay in regulations in the crypto sector. The court has advised the government to invite and take suggestions from all stakeholders as well as government officials and ministries.
Vietnam’s Prime Minister Minh Chinh tasked the central bank to begin working on a pilot project on cryptocurrency. The development comes after Vietnam’s Ministry of Finance established a committee with the research team which is doing an in-depth study of cryptocurrencies in line with the global policies, with a view to achieving legislative reform for the crypto industry in the country.
Because it has a ready trading infrastructure, the Philippine stock exchange wants crypto trading under its influence. Ramon Monzon, President, and chief executive officer of the PSE, pointed out that price volatility in crypto trading can lead to instant riches and instant poverty. The PSE is waiting for the guidelines to come from the Securities and Exchange Commission (SEC) regarding the trading and cryptocurrencies regulation.
The Reserve Bank of India is working on launching its own central bank digital currency.
T Rabi Sankar, deputy governor of RBI confirmed that India’s CBDC will be rolled out this year in different phases and said the process will be gradual without disrupting the financial and banking sector. Several countries are currently working and testing on CBDCs. For now, India is among the fastest crypto-adopting countries in the world along with Vietnam, the Philippines, Pakistan, and Zanzibar.
After the financial crisis of 2008, Bitcoin has been controversial and hated by traditional financial institutions. Governments have become fearful of Bitcoin as it completely exposed them and showed its potential to raise the existing financial system and undermine their role in it.
While Bitcoin has shown its potential to decentralize and change the way how existing financial infrastructure works, the cryptocurrency’s ecosystem is still rife with manipulators and scammers. Until the time that the entire crypto ecosystem matures and shows a significant use case, Bitcoin will continue to provoke and attract criticism from established authorities as they have a limited choice when it comes to decentralized power like bitcoin.
