Key Takeaways
- RBI Governor Sanjay Malhotra now claims that cryptocurrencies present a potential risk to India’s financial stability and monetary policy.
- There are currently no new regulatory developments, but India is actively working on creating a comprehensive regulatory framework to address cryptocurrency regulations.
- The overcautious stance taken by the RBI highlights a growing global trend in which central banks prioritize safeguarding economic stability amid growing cryptocurrency adoption.
RBI Governor Sanjay Malhotra now claims the Reserve Bank of India (RBI) was concerned about the possibility of cryptocurrencies hampering financial stability and the country’s monetary policy.
The RBI Governor made the statement during a media interaction while answering questions about the RBI’s policy in the backdrop of the Supreme Court’s observation on cryptocurrency last month.
No Policy Changes Made Yet
Emphasizing that the RBI had not yet made any policy changes, Malhotra stated that the RBI remained vigilant about the potential risks posed by unregulated cryptocurrencies to the country’s financial system and the effectiveness of its monetary policy. The cautious approach that India’s central bank has adopted reflects a growing trend globally in which central banks are wary of the volatility and systemic risks associated with digital assets. Malhotra said:
“There is no new development as far as crypto is concerned. A committee within the government is overseeing this. Of course, as you are aware, we are concerned about crypto because that can hamper financial stability and monetary policy.”
Inter-Ministerial Group on Crypto Regulation
The Supreme Court of India last month slammed the RBI for failing to formulate a “clear-cut” policy on cryptocurrency regulation while at the same time underlining the impact of Bitcoin on the economy. The Supreme Court bench stated that the Bitcoin trade operated as an illicit trade, much like the “hawala” business; yet, the government was keen on collecting taxes from the crypto trade, which it had not been formally recognized.
India is currently working on a paper on cryptocurrency regulation with an inter-ministerial group (IMG) comprising officials from the RBI, SEBI, and the Ministry of Finance, which is examining global norms. Since there isn’t any form of regulation, cryptocurrency isn’t illegal in India. The paper aims to provide all stakeholders with an opportunity to share their views before India decides on its policy stance regarding cryptocurrencies.
Crypto Stance: A Legal Paradox
In what can only be termed a legal paradox, the Indian government announced a flat 30 percent tax on gains arising from cryptocurrency trade in 2022. Nonetheless, the government insists that taxing income from cryptocurrencies does not necessarily and explicitly legalize cryptocurrencies. Currently, cryptocurrencies are an unregulated asset in India, a country where digital assets are viewed from the perspective of anti-money laundering law. The Supreme Court bench wondered why the government would collect income tax from an asset it doesn’t recognize legally.
Conclusion
The remarks by the RBI Governor signal the cautious stance adopted by the Reserve Bank of India amid the ongoing regulatory developments. While the Central Bank Governor raises concerns about the potential impact of cryptocurrencies on financial stability, the government is making progress toward creating a clear and comprehensive legal framework to address the existing legal ambiguity. The Indian crypto community has a rare opportunity to participate in the forthcoming consultations to safeguard their interest in a rapidly evolving crypto landscape.
Frequently Asked Questions
Is India a crypto-friendly country?
Indians have invested heavily in cryptocurrencies in recent years despite the country’s stringent regulatory stance and high trading taxes. India is reassessing its stance on cryptocurrency due to shifting global attitudes, particularly following the U.S. government’s crypto-friendly moves.
Is crypto trading legal in India?
Currently, cryptocurrencies are unregulated in India, although they are not explicitly illegal. The government has been working on a discussion paper to seek stakeholders before deciding its formal stance.
Is India reviewing crypto regulations due to global adoption?
According to the Union Budget 2022, cryptocurrencies are not yet considered legal tender in India; however, they are taxable as capital gains. The lower house of India’s parliament is now reviewing the Cryptocurrency Bill 2021.
