Analysing Digital Currency Bill from the US Perspective
The Digital Currency Bill 2021 would be the legislative attempt for India to present a wholesome framework of regulating cryptocurrencies and addressing all the complex challenges issued by digital assets. At this moment, the bill emerges in a world where governments grapple throughout the world to provide a balance in unleashing innovation in the financial technologies sector with the imperatives of financial stability and security. It essentially aims to provide form and establish an officially recognized digital currency and govern the same while at the same time restricting the growth of private cryptocurrencies in the Indian market.
Analysis
The bill is essentially to permit an interoperative framework, under which the Reserve Bank of India could issue official digital currency. Most central banks across the world are either exploring or developing Central Bank Digital Currency. In a detailed outline and distinguishing the official digital currency proposed by the bill from private cryptocurrencies, the digital currency has been defined. This makes all the difference since it is based on such a foundation that Indian law will treat differently kinds of digital assets.
It has taken a very serious approach towards private cryptocurrencies. While the bill was initially introduced as one proposing a complete ban on private cryptocurrencies, over time, it adopted a very practical way of accepting it. A particular section was exempted for the sake of supporting the underlying technology of cryptocurrency and its utilities instead of posing a threat to the financial system with respect to system-level risks.
Such an even-handed approach may indicate a growing recognition on the part of regulators that blockchain technology-the foundational underpinning of most cryptocurrencies-has uses far beyond simply digital currency. The proposed framework of the bill governs or supervises trading platforms for cryptocurrencies, wallet providers, and other service providers within the ecosystem. It includes norms related to customer protection, anti-money laundering, and know-your-customer. These rules are implemented to allow innovation in a regulated environment with adequate safeguards against misuse.
In just a few short months, the case of SEC v. Ripple Labs has fast become landmark in U.S. crypto regulation but promises implications that go far, far beyond American shores. Filed last December, the case turns on whether the XRP token issued by Ripple constitutes a security under U.S. securities laws. It almost seems to have been some sort of harbinger for the cryptocurrency industry, setting precedents about how it would be categorized and regulated in the United States and thereby influenced approaches to regulating it around the world.
The core issue in the Ripple case is that the SEC claims Ripple made an unregistered securities offering by selling XRP tokens. The case has brought forward a question of real complications: whether traditional security laws dating back to the 1930s can be applied to modern digital assets. Recognizing this, Ripple’s defense was that XRP is a currency and not a security and, as such, falls into the limits where the adoption of the traditional securities frameworks upon innovative financial technologies pertains.
The Ripple case has reflected how hard it is to apply the Howey Test in using it for cryptocurrency assets. The test in SEC v. W.J. Howey Co., established in 1946, figures out if a transaction is an “investment contract” or thus a security under federal law.
Indeed, applying such a test to the case of digital assets has proved somewhat complex, especially when taking account of the fact that most cryptocurrencies appear to serve a multiplicity of purposes and therefore do not neatly fit into those traditional categories of assets. Such complexity has implications for how regulatory frameworks around the world approach the classification and regulation of digital assets.
Much of the weight of Ripple’s case has to do with its development of the “fair notice” defense. No point in time was ever given by the SEC regarding what constitutes fair notice for determining when issued digital assets are securities, and that in itself forms a larger challenge around cryptocurrency regulation: regulatory clarity in this constantly changing technological landscape. It’s been a big defense for many in the cryptocurrency space, who have long wanted clearer regulatory guidance. The case has also brought forth the international dimension of cryptocurrency regulation. Ripple is an international firm, and by its very nature, cryptocurrency has to be traded across borders; hence, there has to be a harmonized approach at the level of regulation across international borders. This judgment will impact the regulatory choice other jurisdictions make, which will affect the growth of the worldwide standard in regulating digital assets.
The difference between India’s legislative approach through the Digital Currency Bill 2021 and the United States’ regulation enforcement approach through the Ripple case are two different avenues toward regulating cryptocurrencies.
The United States has heavily relied on the existing securities laws as well as regulation enforcement actions as the way of shaping its cryptocurrency landscape, while India has resorted to a very comprehensive legislative framework that attempts to deal with CBDCs in tandem with private cryptocurrencies.
All this reflects a different legal tradition and regulatory philosophy, yet all these were for the same reasons: protection for investors, financial stability, and innovation. Both equally respect the unique challenges presented by the cryptocurrencies as well as the benefits in favor of the latter. The interplay between both approaches contributes towards an evolving global body of regulations on cryptocurrencies.
The converging developments in the regulatory environments bring attention to approaches that permit rapid change in the area of technology but do not compromise on protection. Lessons learned through experiences gained in the evolution of the cryptocurrency market in both jurisdictions would prove invaluable in the development of effective regulatory frameworks meant to advance innovation, at the same time, maintaining market stability and protecting consumers.
Comparative study
The IAMAI v. RBI case, the Digital Currency Bill 2021, and SEC v. Ripple Labs demonstrate somewhat important information about current trends in the regulation of cryptocurrencies across jurisdictions, reflecting the acknowledgment of differences in approach to the same challenge-both in terms of what regulatory objectives and implementation strategies diverge from one another. Analyzing the cases alongside related legislative initiatives provides extremely valuable insights into the process of developing a regulation balancing innovation with regulatory compliance.
Author: Sufian Ahmad, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.
References
- https://www.livelaw.in/columns/parliament-cryptocurrency-digital-currency-crypto-bill-rbi-sebi-169508
- https://prsindia.org/billtrack/prs-products/prs-legislative-brief-3300
- https://www.kychub.com/blog/cryptocurrency-regulations-in-india/
- https://www.india-briefing.com/news/india-cryptocurrency-bill-in-the-works-definition-clarity-on-taxation-key-priorities-stakeholders-23079.html/
