The Reserve Bank of India supports banning cryptocurrencies in India but there should be an international collaboration to make crypto prohibition law effective in the country, according to Finance Minister Nirmala Sitharaman.
Replying to a query in the Lok Sabha, the Finance Minister said in a written reply: “RBI is of the view that cryptocurrencies should be prohibited. 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.”
Commenting on the FM’s statement, Shivam Thakral, CEO, BuyUcoin, a homegrown cryptocurrency exchange, said,
“We have always reiterated the fact that we need a global framework for regulating the crypto and blockchain industry. We support our Finance Minister in her efforts to seek global coordination for regulating crypto as it is a positive step taken in the right direction.”
“Crypto assets are truly global and call for a dynamic global body to understand the nuances of Crypto/Blockchain and boost its implementation within the existing financial ecosystem,” he added.
The RBI had previously raised concern over the “destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country.”
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The Finance Minister said the RBI has registered its concern over the adverse effect of cryptocurrency on the Indian Economy.
“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 de-stabilising effect on the monetary and fiscal stability of a country,” FM said.
In 2018, the RBI has prohibited its regulated entities to deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling VCs. The RBI’s ban was, however, set aside by the Supreme Court on March 4, 2020.
Through a circular dated May 31, 2021, the RBI advised its regulated entities to continue to carry out customer due diligence processes for transactions in VCs, in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under Prevention of Money Laundering Act (PMLA), 2002, etc. in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.
“Crypto/Blockchain is a global phenomenon and it will be difficult to regulate the crypto industry based on isolated policies by various countries. There is an urgent need to create a homogeneous global framework for crypto regulation. The international collaboration on the evaluation of risks and benefits is going to be hard because there are countries who already implemented policies to regulate cryptocurrencies and have a better understanding,” said Tarusha Mittal, COO, and Co-founder of UniFarm, a collaborative wealth creation platform.