Finance Minister Nirmala Sitharaman’s statement in Parliament signals law on cryptocurrencies may be off the table for now
Finance Minister Nirmala Sitharaman’s statement in Parliament signals law on cryptocurrencies may be off the table for now
The Reserve Bank of India has recommended a ban on cryptocurrencies citing ‘destabilising effects’ for the country’s monetary and fiscal health, but a law to regulate or ban cryptocurrencies can only be effective once there’s some form of international agreement in place, the Finance Minister said on Monday.
“Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage,” Finance Minister Nirmala Sitharaman said in a written reply to a question from Lok Sabha MP Thol Thirumavalavan seeking information on the government’s plans to legislate restrictions on such instruments.
“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,” she added.
The Minister’s comments assume significance as they suggest a legislation for reining in the use of cryptocurrency, which had been included in Parliament’s list of business for two sessions last year, is off the table till a global compact of some form can be firmed up on their regulation.
Informing the Lok Sabha about the RBI’s concerns over the adverse effects cryptocurrencies could have for the economy, Ms. Sitharaman said: “RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank or Government.
“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 speculation and expectations of high returns that are not well anchored, so it will have a destabilising effect on the monetary and fiscal stability of a country,” she added.
“In view of the concerns expressed by RBI on the destabilising effect of cryptocurrencies… RBI has recommended for framing of legislation on this sector. RBI is of the view that cryptocurrencies should be prohibited,” the minister said.
The ministry noted that the central bank has been cautioning people against the use of virtual currencies since as far back as 2013. In April 2018, the RBI had prohibited regulated entities from dealing in virtual currencies or providing services for facilitating any person or entity in dealing with or settling them. The directive was set aside by the Supreme Court in March 2020.
Subsequently, in May 2021, the central bank advised its regulated entities to continue to carry out customer due diligence processes for transactions in such currencies, in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering, Combating of Financing of Terrorism, obligations under Prevention of Money Laundering Act, 2002, etc. and Foreign Exchange Management Act (FEMA) norms for overseas remittances.
