The RBI is of the view that cryptocurrencies should be prohibited. And, given the concerns expressed by the central bank on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, it has recommended framing of legislation on this sector, finance minister Nirmala Sitharaman said on Monday.
This is the first official statement acknowledging RBI’s views backing a ban on cryptocurrencies, although it was known that the central bank wanted cryptocurrencies to be barred. “Yes sir. RBI has registered its concern over the adverse effect of cryptocurrency on Indian economy. RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank / government,” Sitharaman said in a written reply in the Lok Sabha. She said that the central bank has said that 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.
Sitharaman 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 said.
The finance minister said the RBI has been cautioning users, holders and traders of virtual currencies through notices that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks.
She said the RBI had also issued a circular on April 6, 2018, prohibiting its regulated entities to deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. That circular had been set aside by the Supreme Court on March 4, 2020.
RBI governor Shaktikanta Das had said last month that cryptocurrencies are a clear danger and anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name.