RBI is looking to ban cryptocurrencies in India but needs global support to bring it into action.
Cryptocurrencies are unregulated in India however, the government is in midst of consultations to draft legislation regulating it. The RBI is anxious about cryptocurrencies due to their perplexing nature and loss of any intrinsic value.
Union Finance Minister Nirmala Sitharaman said on Monday that the Reserve Bank of India (RBI) is in favour of banning cryptocurrencies, fearing their destabilizing impact on monetary and fiscal stability.
In a written reply to a query Nirmala Sitharaman has addressed the Lok Sabha; “In view of the concerns expressed by RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country; RBI has recommended for framing of legislation on this sector. RBI is looking to ban cryptocurrencies.”
She also stated that effective legislation on this matter is possible only through international collaboration. “Cryptocurrencies are by definition borderless and 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” she added.
RBI Crypto Ban
Currently, Cryptocurrencies are unregulated and the government is looking to introduce a crypto legislation bill. Every crypto investor was waiting for this bill. The government declared that the bill shall be announced by May 2022. But the bill is still awaited.
The government has so far refused to make any public comments on cryptocurrencies, because of the confusion over their classification; whether they are financial assets or fall into other categories such as commodities.
In a statement, Nirmala Sitharaman stated that; “RBI has been cautioning users, holders and traders of Virtual Currencies (VCs) vide 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 also stated that a circular released by RBI on April 6, 2018, where RBI states to prohibit its regulated entities from dealing in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs. The circular was rejected by the Supreme Court on March 4, 2020,” she added.
On 31 May 2021, the RBI also advised its regulated entities such as banks to continue to maintain customer due diligence processes for crypto transactions;
- Know Your Customer Standards (KYC)
- Anti-Money Laundering regulations (AML)
- Countering Financing of Terrorism (CFT)
- Prevention of Money Laundering Act (PMLA), 2002.
This is in addition to ensuring compliance with the relevant regulatory provisions of the Foreign Exchange Management Act (FEMA) for overseas payments.
What Is Considered As Currency According To The Government/RBI
RBI has mentioned that cryptocurrencies are not a currency, because only Central Bank / Government have the authority to issue the modern currency. Also, the value of fiat currencies is anchored by monetary policy and their status as legal tender. However, the value of cryptocurrencies rests solely on the speculations and expectations of high returns that are not well anchored. So it will have a de-stabilising effect on the monetary and fiscal stability of a country. That is why RBI wants to ban Crypto in India.