FM on cryptos: RBI concerned; need international collaboration

The Finance Minister said the RBI has mentioned that “cryptocurrencies are not a currency” and could have a “destabilising effect” on the monetary and fiscal stability of a country. “… 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,” the RBI has told the government, Sitharaman said.

“In view of the concerns expressed by RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, RBI has recommended for framing of legislation on this sector. RBI is of the view that cryptocurrencies should be prohibited.”

Incidentally, the Financial Stability Board — an international body that monitors and makes recommendations about the global financial system and includes officials from the Group 20 countries including India — had earlier this month said that it would propose “robust” global rules for cryptocurrencies in October.

Sitharaman’s remarks come after India introduced a 30 per cent income tax on gains made from cryptocurrencies from this April, in a move that was widely seen as the country embracing the virtual currency. In July, rules regarding 1 per cent tax deducted at source on cryptocurrency came into effect.

The RBI, however, has been consistent in its stance on cryptocurrencies. “The 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.”

In April 2018, it issued a direction to its regulated entities prohibiting them to deal in VCs or provide services for facilitating any person or entity in dealing with or settling. The circular was set aside by the Supreme Court in 2020.