The government has imposed the Prevention of Money-laundering Act, 2002 on cryptocurrencies or virtual assets as it looks to tighten oversight of digital assets.
GS III- Indian Economy
Dimensions of the Article:
- What are cryptocurrencies?
- How are they different from actual currency?
- How do cryptocurrencies derive their value?
- Prevention of Money Laundering Act (PMLA), 2002
What are cryptocurrencies?
- Cryptocurrencies are e-currencies that are based on decentralized technology and operate on a distributed public ledger called the blockchain.
- Blockchain records all transactions updated and held by currency holders.
- The technology allows people to make payments and store money digitally without having to use their names or a financial intermediary such as banks.
- Cryptocurrency units such as Bitcoin are created through a ‘mining’ process which involves using a computer to solve numerical problems that generate coins.
- Bitcoin was one of the first cryptocurrencies to be launched and was created in 2009.
How are they different from actual currency?
- The Main difference is that unlike actual currencies cryptocurrencies are not issued by Governments.
- Actual money is created or printed by the government which has a monopoly in terms of issuing currency. Central banks across the world issue paper notes and therefore create money and assign paper notes their value.
- Money created through this process derives its value via government fiat, which is why the paper currency is also called fiat currency.
- In the case of cryptocurrencies, the process of creating the currency is not monopolized as anyone can create it through the mining process.
How do cryptocurrencies derive their value?
- Any currency has its value if it can be exchanged for goods or services and if it is a store of value (it can maintain purchasing power over time).
- Cryptocurrencies, in contrast to fiat currencies, derive their value from exchanges.
- The extent of involvement of the community in terms of demand and supply of cryptocurrencies helps determine their value.
Prevention of Money Laundering Act (PMLA), 2002
- According to the Prevention of Money Laundering Act (PMLA) 2002, Money laundering is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.
- It is frequently a component of other, much more serious, crimes such as drug trafficking, robbery or extortion.
- Money laundering is punishable with rigorous imprisonment for a minimum of 3 years and a maximum of 7 years and Fine under the PMLA.
- The Enforcement Directorate (ED) is responsible for investigating offences under the PMLA.
- The Financial Intelligence Unit – India (FIU-IND) is the national agency that receives, processes, analyses and disseminates information related to suspect financial transactions.
- After hearing the application, a special court (designated under the Prevention of Money Laundering Act PMLA, 2002) may declare an individual as a fugitive economic offender and also confiscate properties which are proceeds of crime, Benami properties and any other property, in India or abroad.
- The authorities under the PMLA, 2002 will exercise powers given to them under the Fugitive Economic Offenders Act.
- These powers will be similar to those of a civil court, including the search of persons in possession of records or proceeds of crime, the search of premises on the belief that a person is an FEO and seizure of documents.
-Source: The Hindu