RBI Mulls Crypto Ban, Govt Seeks Global Support To Regulate It: FM Nirmala Sitharaman

The Union Finance Minister Nirmala Sitharaman has dropped a bombshell on India’s crypto industry, stating that the Reserve Bank of India (RBI) is of the opinion that crypto should be banned, bringing the talks of a crypto ban in India back to the forefront.

“In view of the concerns expressed by the RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, the RBI has recommended framing of legislation on this sector. The RBI is of the view that cryptocurrencies should be prohibited,” the FM said during the proceedings of the Monsoon session of the Parliament.

The finance minister was addressing the queries pertaining to cryptocurrencies in Lok Sabha today. Adding to her comments, Sitharaman said that banning crypto will not be possible without international support, as cryptocurrencies are borderless.

“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,” the FM said.

Sitharaman’s comments come as India has already adopted a strict taxation regime for all cryptocurrencies, with a 30% crypto tax, 1% TDS and possible inclusion in the GST ambit.

The move, if materialised by RBI will impact an already spiralling crypto economy in India and across the world, with major cryptocurrencies such as Bitcoin and Ethereum losing a significant chunk of their value.

Crypto In Regulatory Grey Area

The government has been unclear on its stance on cryptocurrencies for a long time, with the consistently vague remarks from the FM and the RBI constantly playing the role of antagonist. The government has not batted for a crypto ban, but the RBI has not hesitated in voicing its support for the same.

Back in March, Sitharaman had said that the finance ministry sees a future in crypto and a possibility of revenue in the form of taxes. “Many Indians have seen a future in crypto, therefore, I see a possibility of revenue in it,” she then said.

In April, the FM, while addressing the International Monetary Forum (IMF) in Washington DC, said that while India recognises crypto’s usability, there is a need for global crypto regulations.

To be sure, India has expressed its concerns regarding the illegal use of cryptos, such as for terror financing and money laundering at multiple international forums. Therefore, multiple voices within the Indian government have been batting for a crypto ban.

Even as the government has started taxing cryptocurrencies, it still insists that it has not legitimised the same. “We haven’t said that this is currency. We haven’t said that this has intrinsic value, but certain operations are taxable for the sovereign and that is why we have taxed,” Sitharaman said in April.

While the government seeks to regulate and control cryptocurrencies, the RBI has been trying to get the government to ban crypto outright. RBI officials have gone public in likening crypto to the Dutch Tulip Market Bubble of the 17th century; the RBI governor also called cryptos a danger to a nation’s economic stability.

At the same time, both the Finance Minister and the RBI have been in support of the government’s own answer to cryptocurrency, a Central Bank Digital Currency (CBDC) called the Digital Rupee. RBI has gone so far as to say that CBDCs could ‘kill’ the rationale for the existence of private cryptocurrencies.

With already an ambiguous regulatory stance on cryptocurrencies, the Finance Minister’s most recent comments on RBI’s stance on cryptos will come as another blow to India’s fast-growing crypto industry and the more than 100 Mn crypto investors in India.