India’s central bank wants to ban cryptocurrencies, the government told parliament on Monday, raising further uncertainty about the future of the fledgling virtual digital asset in the world’s second-largest internet market.
nirmala sitharaman, india’s finance minister, said on monday that the reserve bank of india raised concerns about the “destabilizing effect of cryptocurrencies on the monetary and fiscal stability of a country” and recommended ” formulate legislation on this sector,” he said.
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“rbi is of the opinion that cryptocurrencies should be banned,” he added.
The formulation of any legislation for the regulation or prohibition of cryptocurrencies will require “significant international collaboration”, he added (pdf). The government set out its reasoning in response to a series of questions posed by Tholkappiyan Thirumavalavan, a member of Parliament, in the Lok Sabha, India’s lower house.
“Cryptocurrencies, by definition, are borderless and require international collaboration to avoid regulatory arbitrage. therefore, any legislation for regulation or prohibition can be effective only after significant international collaboration in the assessment of risks and benefits and the evolution of common taxonomy and standards,” he added.
The Financial Stability Board, a body of regulators, treasury officials and central bankers from the group of 20 economies including India, said earlier this month that it would propose “robust” global rules for cryptocurrencies in October this year. the fsb said that crypto assets were predominantly used for “speculative purposes” and did not operate in a “regulation-free space”.
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sitharaman’s response poses an additional challenge for the adoption of cryptocurrencies and platforms that enable innovation in the nation.
India’s decision to tax cryptocurrency trading-related transactions and profits earlier this year was seen as a move by the Indian central bank to start embracing the fast-growing nascent technology. but in recent months, Indian banks have sent different signals to industry players.
India’s central bank continues to force banks not to engage with crypto platforms in India, a move that has made entry a nightmare for businesses, people familiar with the matter said.
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Coinbase stopped trading service in India earlier this year due to “informal pressure” from Reserve Bank of India Brian Armstrong, the crypto exchange’s CEO said. local exchanges and other crypto businesses have also seen a sharp decline in trading volume in recent months, in part due to local tax law.
internet and mobile association of india, an influential 18-year-old lobbying group in india, turned its back on crypto advocacy last week, citing regulatory uncertainty.
India’s central bank has been consistent with its stance on cryptocurrencies.
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In February, a senior Indian central bank official likened cryptocurrencies to a “ponzi scheme” and suggested an outright ban in his sharpest criticism. t. Rabi Sankar, deputy governor of the Reserve Bank of India (RBI), told the audience at a banking conference that cryptocurrencies have been “developed specifically to circumvent the regulated financial system” and are not backed by any underlying cash flow.
“We have also seen that cryptocurrencies cannot be defined as currency, assets or merchandise; they have no underlying cash flows, they have no intrinsic value; that are similar to ponzi schemes, and may even be worse,” he said.
“as a store of value, cryptocurrencies like bitcoin have given impressive returns so far, but so did tulips in the 17th century netherlands. cryptocurrencies are very much like a speculative or gambling contract that works like a ponzi scheme. in fact, it has been argued that the original scheme devised by charles ponzi in 1920 is better than cryptocurrencies from a social perspective.”
sitharaman recalled that the reserve bank of india has been warning users, holders and traders of virtual currencies since December 2013.
“in addition, rbi, vide its circular dated May 31, 2021 has also advised its regulated entities to continue carrying out customer due diligence processes for transactions in vcs, in line with the regulations that govern the standards to know to your client (kyc), anti-money laundering (aml), combating the financing of terrorism (cft), obligations under the prevention of money laundering act (pmla), 2002, etc., in addition to ensuring compliance of the relevant provisions under the foreign exchange management act (fema) for remittances abroad,” he added.
In the wake of uncertainty, the local ecosystem has seen some talent move out of the country and a growing number of local entrepreneurs build for foreign markets and avoid serving clients in India.
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