The central bank told the parliamentary standing committee on finance that countries like Qatar and China have already banned any cryptocurrency activity, while countries in Europe have issued stringent regulations to govern the asset class
During the deliberations, the RBI highlighted that cryptocurrencies, which are privately issued assets not governed by central banks unlike fiat currencies, carry the risk of being used for illegal activities like terror funding and narcotics smuggling
The RBI also criticised stablecoins which are backed by fiat currencies like the dollar and hence don't have value fluctuations like cryptocurrencies
Reiterating its long-standing opposition to virtual digital assets (VDAs), the RBI told a parliamentary panel that cryptocurrencies pose a threat to the economy and should not be legalised.
The central bank told the parliamentary standing committee on finance that countries like Qatar and China have already banned any cryptocurrency activity, while countries in Europe have issued stringent regulations to govern the asset class, PTI reported.
In India, cryptocurrencies operate in a regulatory grey area, with no dedicated legal framework in place despite the country being one of the world’s largest adopters of VDAs.
The discussions took place during the committee meeting held yesterday on the topic, ‘A Study on Virtual Digital Assets (VDAs) and Way Forward’. Talks were held with representatives of both the RBI and of the Institute of Chartered Accountants of India (ICAI).
During the deliberations, the RBI highlighted that cryptocurrencies, which are privately issued assets not governed by central banks unlike fiat currencies, carry the risk of being used for illegal activities like terror funding and narcotics smuggling. Besides, it said governing crypto assets held by offshore entities is a difficult task and poses challenges for regulatory authorities.
According to a separate report by ET, the RBI pitched for a containment strategy leaning towards prohibition for VDAs to ensure banks and regulated financial institutions are insulated from the risks posed by the asset class.
The RBI also criticised stablecoins which are backed by fiat currencies like the dollar and hence don’t have value fluctuations like cryptocurrencies. As per the central bank, stablecoins undermine the monetary sovereignty of the nation and users should instead adopt the central bank digital currency (CBDC) for virtual asset transactions since it is issued by the RBI itself and is backed by the rupee.
BJP MP Bhartruhari Mahtab, who heads the committee, said the RBI is against legalising crypto assets, adding that the committee may soon issue a report on its deliberations with various industry and government bodies on crypto assets.
Notably, this was the seventh meeting held by the committee on VDAs. In a meeting earlier this year with the income tax department, concerns were flagged that VDAs could be used to move funds through a system without regulated financial intermediaries.
Despite being unregulated in the country, cryptocurrency gains are taxed at 30%.
Interestingly, the RBI also refuted long-held claims that India is one of the largest adopters of cryptocurrency assets, claiming that the methodology used by private blockchain analytics firms is flawed and overstates adoption by more populous countries.
The sharp criticism came amid heightened scrutiny of the crypto ecosystem in recent months. The Maharashtra government this week brought crypto assets under its Protection of Interest of Depositors Act, effectively classifying them as recoverable property that authorities can attach, seize, and liquidate from fraudsters to refund victims.
In June, the Enforcement Directorate (ED) carried out searches at six locations in Bengaluru as part of an investigation into alleged large-scale violations of the Foreign Exchange Management Act (FEMA) involving cross-border money transfers through virtual digital assets.
The platforms in question provided users with the option of turning fiat currency into crypto assets and vice-versa, while forgoing the 1% TDS deducted from all crypto transactions to keep track.
This comes as many foreign crypto exchanges, including Binance and Coinbase, have re-entered the Indian market in recent months after they were held up for non-compliance with Financial Intelligence Unit (FIU) rules. Many have now formally registered with the governing body and issued stringent reporting and KYC rules for users to ensure transactions are traceable.
Source: Inc42 - Startups
