Monday, Oct 03, 2022

FM Nirmala Sitharaman Seeks Global Collaboration To Implement RBIs Recommendation For Crypto Ban

While speaking in the Parliament today, the FM also claimed that cryptocurrencies are not a currency since they are not issued by a country's Central Bank or the government

While delivering a speech in the Parliament today, Finance Minister Nirmala Sitharaman said that the Reserve Bank of India (RBI) had asked the government to frame regulations for cryptocurrencies and even consider banning them. However, she added that a "global collaboration" would be needed to make such a ban effective.

In February, RBI's Deputy Governor T Rabi Sankar said that banning cryptocurrencies is the most advisable choice for India as they are akin to Ponzi schemes. "Banning cryptocurrency is perhaps the most advisable choice open to India, and there are strong reasons to keep cryptocurrencies away from the formal financial system," he added.

While replying to questions on cryptocurrency by MP ThirumaaValavanThol, the FM said, "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 for framing of legislation on this sector. The RBI is of the view that cryptocurrencies should be prohibited." 

However, she added that such an eventuality could come to pass only if countries collaborate, given the borderless nature of the digital currency. "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," Sitharaman further noted.

When asked about RBI raising concerns about the adverse effect of cryptocurrency on the country's economy, Sitharaman mentioned that cryptocurrencies are not a currency because they need to be issued by the Central Bank or the Government. "Further, 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 de-stabilising effect on a country's monetary and fiscal stability," she claimed. 

Work In Progress

Another question directed towards the FM was whether the RBI had issued instructions, circulars, directions, warnings etc., regarding restricting the issuance, buying, selling, holding and circulation of cryptocurrency in India during the last ten years. To this, she pointed out that the regulator has been cautioning users, holders and traders of virtual currencies through various public notices that are dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security-related risks. "RBI had also issued a circular on 6 April 2018 prohibiting its regulated entities from dealing in virtual currencies (VCs) or providing services for facilitating any person or entity in dealing with or settling VCs," she added. 

On 31 May 2021, RBI advised all regulated entities to carry out customer due diligence processes for transactions in VCs. This was in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under the 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.

The 2022-23 Budget proposed a 1 per cent TDS on payments towards VCs beyond Rs 10,000 in a year and taxation of such gifts in the hands of the recipient. The threshold limit for TDS would be Rs 50,000 a year for specified persons, which includes individuals/HUFs who are required to get their accounts audited under the I-T Act.