India’s apex bank, the Reserve Bank of India (RBI) has made public plans to ban cryptocurrencies in the country. On Monday, the government shared the country’s central bank’s plans to ban cryptocurrencies again with the parliament citing uncertainties about the future of the embryonic sector in the country. The decision is a big deal because India is the world’s second-largest internet market and such a decision would find a way to affect the global cryptocurrency space.
Cryptocurrencies were once banned in India. Like many other countries around the world, India has an aversion to cryptocurrencies. The ban on cryptocurrencies in the country lasted two years before it was overturned in March 2020. The Reserve Bank of India imposed a ban on cryptocurrency trading in April 2018 that barred banks and other financial institutions from facilitating “any service in relation to virtual currencies.” The apex bank had embarked on its decision to protect its financial system adding that cryptocurrencies like Bitcoin were not money because they were neither metal nor existed in physical forms.
On Monday, the country’s Minister of Finance Nirmala Sitharaman said that the country’s apex bank has cited concerns about the “destabilizing effect of cryptocurrencies on the monetary and fiscal stability of a country” and has recommended, “for framing of legislation on this sector.” She also did mention that the “RBI is of the view that cryptocurrencies should be prohibited.”
The country’s finance minister said that banning cryptocurrencies or formulating legislation for their regulation will require “significant international collaboration.” She went on to explain that “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.”
On “significant international collaboration,” the G20 which India is a part of announced plans to issue global crypto rules to regulate the crypto space in their countries last week. These rules are expected to be issued in October this year. According to the Financial Stability Board (FSB) (the G20’s financial watchdog), the latest happenings in the crypto world have shown that the sector is associated with volatility, structural vulnerabilities, and therefore requires some kind of measure to keep it in check. The watchdog also added that the crypto sector could affect the broader financial system if not put in check. “The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallization of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem,” the FSB said in a statement.
Earlier in February, India proposed taxes on cryptocurrencies. According to what the country’s finance Minister Nirmala Sitharaman said, income from the transfer of any virtual assets will be taxed at 30 percent. She also proposed a 1 percent tax deduction at source on payments made to purchase virtual assets, so as to capture details of all such crypto transactions. “No deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. Further, loss from the transfer of digital assets cannot be set off against any other income. Gift of a virtual digital asset is also proposed to be taxed at the hand of the recipient”, she had said.
It is also pertinent to know that the country’s central bank once described cryptocurrencies as a Ponzi scheme. Deputy Governor of the Reserve Bank of India, T. Rabi Sankar, while speaking at a banking conference months ago said that cryptocurrencies were “specifically developed to bypass the regulated financial system” and that they are not backed by any assets or underlying cash flow.
If cryptocurrencies get banned once again in the country, cryptocurrency companies as well as talents and local entrepreneurs would be affected and may be forced to find “greener pastures” in other crypto-supporting countries.
Ibhadojemu Lucky Emmanuel is a graduate of Education and Economics from the University of Benin. He has a passion for tech and business and has been writing professionally for over a period of five years. He's written across various topics and segments and knew tech-business was it when he first stumbled on it. He has a great passion for music and arts, and wants to visit as many countries as he can someday.
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