RBI has been cautioning users, holders and traders of Virtual Currencies (VCs) and cryptocurrencies through public notices since 2013, Nirmala Sitharaman said.
The Indian government is in support of a global collaboration if there is a need to prohibit or regulate digital assets, including cryptocurrencies, even as the Reserve Bank of India has made its stance clear on these assets, finance minister Nirmala Sitharaman said on Monday, July 18. She was replying to a written question at the Parliament on cryptocurrency by MP Thirumaa Valavan Thol on the day.
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Thol asked the finance minister whether the central bank had issued instructions, circulars, directions, warnings or anything else in relation with the issuance, buying, selling, holding and circulation of cryptocurrencies in the last 10 years in India. “RBI has been cautioning users, holders and traders of Virtual Currencies (VCs) vide public notices on December 24, 2013, February 01, 2017 and December 05, 2017 that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks. RBI had also issued a circular in April 6, 2018 prohibiting its regulated entities to deal in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs,” Sitharaman replied.
“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.
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The Reserve Bank has repeatedly warned against the macroeconomic effects of cryptocurrencies, and pointed out their problems while questioning their underlying fundamentals. The central bank’s governor has even called cryptocurrencies a “real danger” in the RBI’s annual report. Sitharaman informed the monsoon session of the Parliament that the RBI has recommended framing legislation on cryptocurrencies and opined that they should be banned.
“This is in view of the concerns expressed by RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country,” said Sitharaman.
She also said that in its May 31 circular, the RBI had asked its regulated entities to carry out processes related to cryptocurrencies, including Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under Prevention of Money Laundering Act (PMLA), 2002. It had also asked to ensure compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.
Speaking on Sitharaman’s comments, Edul Patel, CEO and co-founder of Mudrext said, “RBI’s stance on cryptos has always been rigid. But crypto space can make way for various innovations across the sector in the coming few years. For such an industry to grow and contribute to Digital India’s vision, the government should not ban it but instead can make guidelines for the sector. If the government decides to deny it, it will impact a large section of the stakeholders. India is at the forefront of this growing ecosystem.”
“The Finance Minister’s call for ‘worldwide collaboration’ on regulating or banning of cryptocurrency may be construed that the Indian government may prefer to frame laws around crypto in tandem with other nations, rather than making a jurisdiction specific law which might not be an effective solution,” commented Rishi Anand, partner at DSK Legal.
