India’s central bank wants to ban cryptocurrencies, the government told parliament on Monday, raising more uncertainty about the future of the nascent 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 had raised concerns about “the destabilizing effect of cryptocurrencies on a country’s monetary and fiscal stability” and recommended ” developing legislation on this sector,” she said.
“RBI is of the view that cryptocurrencies should be banned,” she added.
Formulating any legislation to regulate or ban crypto will require “significant international collaboration,” she added (PDF). The government set out its reasoning in response to a series of questions posed by Tholkappiyan Thirumavalavan, a member of parliament from the Lok Sabha, India’s lower house.
“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any regulating or prohibiting legislation can only be effective after significant international collaboration on the assessment of risks and benefits and the evolution of common taxonomy and standards,” she 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 it would come up with “robust” global rules for cryptocurrencies in October this year. The FSB said crypto assets were used primarily for “speculative purposes” and did not operate in a “regulatory free space.”
Sitharaman’s response poses an additional challenge to the adoption of cryptocurrencies and platforms enabling innovation at the peak of it in the country.
India’s move to tax transactions and profits related to crypto trading earlier this year was seen as a move by India’s central bank starting to embrace 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 the hand of banks not to engage with crypto platforms in India, a move that has made the ramp-up a nightmare for businesses, people familiar with the matter said.
Coinbase halted trading service in India earlier this year due to “informal pressure” from the Reserve Bank of India, Brian Armstrong, the crypto exchange’s chief executive said. Local exchanges and other crypto businesses have additionally seen a sharp drop in trading volume in recent months, in part due to local tax laws.
The Internet and Mobile Association of India, an 18-year-old influential lobby group in India, turned its back on defending crypto last week, citing regulatory uncertainty.
India’s central bank has been consistent with its crypto stance.
In February, a senior Indian central bank official compared the cryptocurrency to a “Ponzi scheme” and suggested an outright ban in his most scathing criticism. T. Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), told a banking conference that cryptocurrencies were “specifically developed to circumvent the regulated financial system” and are not backed by any flows underlying cash.
“We have also seen that cryptocurrencies do not lend themselves to being defined as money, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse,” he said.
“As a store of value, cryptocurrencies like bitcoin have yielded impressive returns so far, much like tulips in the 17th century Netherlands. Cryptocurrencies are very much like a speculative or gambling contract operating 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 point of view.
Sitharaman recalled that the Reserve Bank of India has been warning users, holders and traders of virtual currencies since December 2013.
“In addition, RBI in its circular dated May 31, 2021 also advised its regulated entities to continue to carry out customer due diligence processes for transactions in VCs in accordance with regulations. governing anti-money laundering know-your-customer (KYC) standards. (AML), Counter Terrorist Financing (CFT), obligations under the Prevention of Money Laundering Act 2002 (PMLA), etc. added.
In the wake of the uncertainty, the local ecosystem has seen some talent move out of the country and a growing number of local entrepreneurs have built themselves for overseas markets and shunned serving clients in India.
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