NEW DELHI: India’s Finance Minister Nirmala Sitharaman on Monday informed the Parliament that the country’s top bank wants the government to prohibit cryptocurrencies.
This she said was was because the Reserve Bank of India (RBI) believed that cryptocurrencies could have a destabilizing effect on the country’s monetary and fiscal stability.
Minister Sitharaman shared this information in a written reply in the Lok Sabha (lower house) of Parliament on Monday and added that the RBI has been concerned over digital currencies and their adverse impact.
“In view of the concerns expressed by the RBI on the destabilizing 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,” the minister stated, according to reports.
The minister also noted that the RBI considers cryptocurrencies, like Bitcoins or Ether, Shib, “not as a currency” because they are not issued by any bank or government.
According to the report, she said the value of fiat currencies is anchored by monetary policy and their status as legal tender.
On the other hand, 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.
Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage.
“Therefore any legislation for regulation or for banning such currencies 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 Reserve Bank of India (RBI) has been cautioning users, holders and traders of Virtual Currencies (VCs) since 2013 at regular intervals that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks.
It 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.
The circular was set aside by India’s top Supreme Court on March 4, 2020.
Further, the RBI on May 31, 2021 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, etc.
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