RBI wants to ban crypto completely, legal experts say it’s too late

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MUMBAI: On Christmas Eve 2013, the Reserve Bank of India (RBI) issued a memo warning Indians about the financial, legal and security risks of cryptocurrency. This happened four years after the launch of the world’s first cryptocurrency, bitcoin. Eight years later, the central bank’s opposition to crypto has only grown stronger. Earlier this month, the RBI told its board that a “complete ban” on crypto was needed because partial restrictions would not work. In 2018, the RBI effectively banned crypto trading in India because it ordered banks not to facilitate it. A Supreme Court ruling in 2020, however, overturned the central bank’s order. The RBI has always resisted crypto because it has financial stability concerns. The central bank’s monetary policy would be less effective if crypto was allowed to flow freely. Virtual currencies would also undermine banks and other regulated entities. Other concerns about crypto include extreme price volatility and difficulty in tracking transactions. Also, in a country like India, managing currency risk will be a bigger challenge given that money would come in through digital currency and not necessarily dollars, RBI sources argued. Even the IMF’s chief economist, Gita Gopinath, underscored this challenge while stressing that emerging and developing countries face a greater threat. Mumbai’s Mint Road view is that crypto should not be treated as either a currency or an asset, especially given concerns about the illegal funnel of funds. The government has yet to confirm its point of view given that not all wings are in sync on the issue, which has led to the introduction of the bill being postponed at least until the next parliamentary session. According to a fintech player, a section of government could be opposed to a total ban for fear of being cut off from the world and bludgeoning along with China, which banned crypto this year. Legal experts say that while recognizing crypto as legal tender is out of the question, it is too late to ban crypto. According to them, the government’s approach will need to be balanced so as not to harm investors but at the same time not let it grow uncontrollably as this could threaten the country’s foreign exchange reserves and cause disruption in the economy. “The government views cryptocurrencies as investment vehicles and plans to regulate them. Under income tax rules, cryptocurrencies are likely to be treated as assets and attract capital gains. GST and TDS are other areas where the position of the law is unclear, ”said L Badri Narayanan, Executive Partner, Lakshmikumaran & Sridharan Attorneys. Legal experts have said that comprehensive regulation is needed and that it would not be fair to compare India’s policy stance on crypto with that of developed countries like the UK, which takes a “regulatory” approach. piecemeal ”, due to exchange rate differences. regulations. “You cannot withdraw money from India without authorization. We are a regulated market when it comes to foreign exchange and that means we cannot make certain decisions like developed countries which have a free market, ”Narayan said. He added that it would be difficult for regulators to stop crypto payments by Indians abroad. The crypto industry has also sought clarification on tax and currency laws. “Under the FEMA (Foreign Exchange Management Act), the cross-border movement of ‘goods’ and ‘services’ is classified as import / export. However, the regulations do not specify whether crypto tokens constitute “goods”, “said Sumit Gupta, CEO and co-founder of CoinDCX, a crypto exchange and co-chair of industry body BACC. A section of government has suggested that crypto could be regulated as an asset class by market watchdog Sebi. To this end, a bill on cryptocurrencies, accompanied by some amendments to the RBI and Sebi laws, had to be tabled in Parliament. However, the much-anticipated Crypto Bill and other amendments were not introduced in the recently concluded winter session of Parliament. Prime Minister Narendra Modi said emerging technologies like crypto should be used to “empower democracies, not undermine,” while FM Nirmala Sitharaman said cryptocurrencies will not be allowed for payments in India.

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