Any legislation to regulate or ban cryptocurrencies can be effective only if it is globally coordinated, finance minister Nirmala Sitharaman said on Monday, in a sign that immediate prohibition of the intangible digital tokens is not on the government’s agenda.
The Reserve Bank of India (RBI) had suggested that the government formulate a piece of legislation on cryptocurrencies and “prohibit” them, citing their “destabilising effect” on the monetary and fiscal stability, Sitharaman told Parliament on Monday. The government, however, thinks that for any regulation or ban on cryptocurrencies to be effective, a global strategy needs to be firmed up first.
In a written reply in the Lok Sabha, she said: “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.
Last month, economic affairs secretary Ajay Seth said India would soon finalise a consultation paper on cryptos with inputs from stakeholders and even multilateral institutions such as the World Bank and the International Monetary Fund (IMF).
In recent months, India has been seeking to gather consensus around a global strategy on cryptos at international fora, including at meetings of the G-20 group, the World Bank and IMF. Last week, Sitharaman called on G-20 members to consider bringing non-financial assets like cryptocurrencies under the ambit of the automatic exchange of information mechanism among countries to curb tax evasion.Sitharaman said: “RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank/ government. Further, 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 destabilising effect on the monetary and fiscal stability of a country.”
While senior finance ministry functionaries have made their unease over cryptocurrencies amply clear, the government is yet to formally put them in any category — as either a currency or a financial asset. The proposed consultation paper is expected to shed more light on this issue.
The government had intended to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill in the winter session of Parliament last year, but later decided against it. The Bill had sought to “prohibit all private cryptocurrencies”, although it would have allowed certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Subsequently, following the Budget announcement to tax profits made from transactions of virtual digital assets at 30%, some analysts had claimed that the move legalised cryptos. To scotch such speculations, Sitharaman had repeatedly said it was the government’s “sovereign right to tax” such transactions and that the Budget move had neither legalised nor prohibited cryptos. Any decision on whether to prohibit them or not would be taken after wide-scale consultations, she had said.