Key Takeaways:
- Sitharaman states cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage.
- RBI had earlier sought a ban on crypto in India.
Union Finance Minister of India Nirmala Sitharaman states that the Reserve Bank of India (RBI) has recommended to the Government that it should ban cryptocurrencies. The Minister made statements while responding to queries related to cryptocurrency in the monsoon session of the Parliament.
Sitharaman adds that the Indian Government requires international collaboration if such a crypto ban must be implemented. Adding that RBI has recommended framing of legislation on crypto, Sitharaman states that cryptocurrencies are by definition borderless and therefore require international collaboration to prevent regulatory arbitrage.
“Therefore any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” the Finance Minister said in the Parliament.
Answering a question of whether RBI has issued instructions regarding restricting the issuance, buying, selling, holding, and circulation of crypto in India during the last ten years, the Sitharaman replied, “RBI has been cautioning users, holders, and traders of Virtual Currencies (VCs) with public notices on December 24, 2013, February 01, 2017, and December 05, 2017, that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks”
She further added that the Central Bank had issued a circular in April 2018 prohibiting its regulated entities to deal in VCs or provide services for facilitating any entity in dealing with Virtual Currencies.
RBI circular dated May 31, 2021, included advising its regulated entities to continue to carry out customer due diligence processes for transactions in VCs, in line with regulations under Know Your Customer, Anti-Money Laundering laws, Combating of Financing of Terrorism, obligations under Prevention of Money Laundering Act 2002, etc. in addition to ensuring compliance with relevant provisions listed under Foreign Exchange Management Act for overseas remittances.
She further pointed out that “RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the Central Bank or Government”. The Finance Minister went on to say that since the value of crypto rests solely on the expectations of high returns that are not well anchored, it will have a destabilizing effect on the country’s monetary stability.
India’s Central Bank-RBI has long maintained a skeptical approach to cryptocurrencies. Earlier this year, T Rabi Shankar, the deputy governor of RBI said that “banning of cryptocurrency is the most advisable choice open to India.”
The RBI Governor Shaktikanta Das has even described crypto as a “clear danger” in its annual report stating that anything that derives value based on make-believe, “without any underlying” is only speculation under a sophisticated name. The Indian Government has also recently imposed taxation on cryptocurrencies. The 30% tax rate on virtual currency assets has come into effect on April 1 and the latest addition was 1% TDS from July 1.
