The Reserve Bank of India’s stand on the cryptocurrency has been a tough spot for Indian investors. Over the years the central bank and regulatory body has warned virtual traders, holders of the digital currency. The Indian government that also backs the idea of banning private digital currency, seeks a digital currency backed by the Reserve Bank of India.
Experts have said that determining prices of cryptocurrency is a volatile attempt since it cannot serve as a fiat currency, that is, a government issued currency backed by gold or any other commodity.
The proponents of the digital currency has however, stated that the volatility would ebb over time with greater acceptance.
The RBI’s stance on Cryptocurrency
The RBI governor Shaktikanta Das had earlier described the digital currency system as a “clear danger”. He had further stated that anything that derives its value from make-believe, without any underlying, is just speculation under a sophisticated name.
The RBI has time and again warned users, holders of the digital currency system about the financial, operational, legal, customer protection, and security-related risks that they will be exposed to.
Further The RBI has recommended that the Indian government impose a ban on the digital currency, upon which TDS was imposed from 1 July. “RBI is of the view that cryptocurrencies should be prohibited,” finance minister Nirmala Sitharam had said in the Lok Sabha on Monday.
“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.” she added.
She added that RBI, with its circular dated May 31, 2021 has also 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.
Indian government’s stance on regulating Cryptocurrency
Finance Minister Nirmala Sitharaman has mentioned that Indian government wants an international collaboration if such a ban has to be put into effect.
She said that 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 Indian Government last year had sought to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 which “seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses”.
The government has also announced tax on gains from virtual assets. The 30% tax rate on virtual currency assets has come into effect from 1 April and the latest addition was 1% TDS from 1 July this year. This has impacted trading volumes on cryptocurrency exchanges in India.
What is Cryptocurrency regulation?
All over the world, governments remain divided regarding the cryptocurrency- whether to consider it as a currency or as an asset. The governments also have been mulling how to control it from an operational point of view.
Therefore the cryptocurrency regulation all over the world has varied from a complete ban to operating with some regulations, to complete freedom of virtual currency trading in the absence of any guidelines.
Last year the RBI has said that it planned to launch a Central Bank Digital Currency (CBDC), a digital form of fiat currency that can be transacted using wallets backed by blockchain, and which is regulated by the central bank. Even though this idea was inspired by Bitcoin, it is different from decentralised virtual currencies and crypto assets, which are not issued by the state, and lack the ‘legal tender’ status declared by the government.
Having said that the legal status of cryptocurrency in India still remains in limbo as the RBI and the Indian government is trying to figure out the delimitation of the digital currency. However, currently no regulation or ban on cryptocurrencies in India.