Reserve Bank of India Seeks Ban on Crypto, but Government Claims Global Response Needed

The Reserve Bank of India (RBI) has asked the Indian Government to ban cryptocurrencies in the country, citing the “destabilizing” effect of this asset class on monetary stability. However, so far the Indian Government has reiterated its stance that a global collaboration would be required for any effective regulation or ban. Meanwhile, Indian taxes on cryptocurrency income are some of the harshest in the world.

India’s Central Bank Asks for Blanket Ban on Crypto

India’s Central Bank has long maintained a harsh stance toward cryptocurrencies, claiming that the nascent asset class has no underlying value. It has also been warning investors and the government against crypto, citing volatility as well as risks of fraud and scams. 

In April 2018, the RBI even banned banks from supporting crypto transactions after cases of fraud through virtual currencies were reported. The ban was later overruled by the Supreme Court in March 2020 on the grounds of disproportionality.

And most recently, the central bank has once again requested the government to frame regulations for cryptocurrencies and prohibit them. Nirmala Sitharaman, India’s Finance Minister, said in Parliament on July 18: 

“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.” 

In RBI’s annual report in July this year, governor Shaktikanta Das termed cryptocurrencies a “clear danger” and claimed they are just speculation under a sophisticated name. “While technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against,” Das said at the time. 

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India’s Government Says “Global Collaboration” Needed to Ban Crypto

In response to the request by the RBI, Sitharaman said a “global collaboration” is needed if a ban has to be put into effect. The finance minister said:

“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. 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 added that the RBI believes cryptocurrencies are not currencies because every modern currency needs to be issued by the government or central bank. She asserted:

“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 the monetary and fiscal stability of a country.”

Notably, the finance minister has also said cryptocurrencies need to be brought under the purview of tax information shared by countries. During a G20 Ministerial Symposium on Tax and Development in Bali, she reportedly asked G20 countries to consider exchanging information on non-financial assets not covered by Common Reporting Standards (CRS).

Earlier this year, India’s government unveiled its crypto tax plans, which included a proposal to tax gains from crypto transfers at a 30% rate. Moreover, any buyer of virtual digital assets will have to pay a 1% tax deduction at source (TDS). 

The new crypto tax plans have already adversely impacted trading volumes on cryptocurrency exchanges in India. Some experts had previously warned that the levy of 1% TDS would hurt crypto liquidity in India as it would force high-frequency traders to dramatically reduce their trading in a bid to trim taxes.

How do you think other countries would respond to India’s request for a global ban on cryptocurrencies? Let us know in the comments below.