Finance Minister Nirmala Sitharaman on Monday said the RBI has expressed concerns over cryptocurrencies saying that they should be prohibited as they can have destabilizing effects on monetary and fiscal stability.
”Given 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 framing of legislation on this sector. The RBI is of the view that cryptocurrencies should be prohibited,” she said in a written reply to the Lok Sabha.
She said the RBI had registered its concern over the adverse effect of cryptocurrencies on the Indian economy.
The RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank or the government, she said.
Further, she said, 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 destabilizing effect on the monetary and fiscal stability of a country.
Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage.
Therefore, she said, 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.
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 also issued a circular on April 6, 2018, prohibiting its regulated entities to deal with VCs or provide services for facilitating any person or entity in dealing with or settling VCs. The circular was set aside by the 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.