In a massive development on Monday, Union Finance Minister Nirmala Sitharaman told the Lok Sabha that the Reserve Bank of India is in favour of banning cryptocurrencies. She was responding to an unstarred question of VCK MP Thol Thirumaavalavan who sought information on whether the RBI had registered concern over the adverse impact of cryptocurrency on the Indian economy.
He also asked Sitharaman to clarify whether it had recommended framing suitable legislation to control the flow of cryptocurrency in India and the Centre's stance on the same.
Nirmala Sitharaman stressed, "RBI has registered its concern over the adverse effect of Cryptocurrency on Indian Economy. RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the Central Bank / 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 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."
"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," she added. However, the Union Finance Minister highlighted that any legislation for regulation or banning of cryptocurrencies will be effective only after significant "international collaboration" on the evaluation of risks and benefits and the evolution of a common taxonomy.
Centre's evolving stance on cryptocurrency
In 2021, the Centre listed The Cryptocurrency and Regulation of Official Digital Currency Bill for passage in the Winter session of Parliament last year. It was aimed at creating a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The bill also sought to prohibit all private cryptocurrencies in India except for certain exceptions to promote the underlying technology of cryptocurrency and its uses. However, the Union government deferred the introduction of this bill.
During her Budget speech in February, Sitharaman announced a 30% tax on income earned on the transfer of virtual digital assets. Explaining the rationale for this move, she highlighted the magnitude and frequency of these transactions. Moreover, she also clarified that the gifting of virtual digital assets will also be taxed. While she hasn't specified what will fall under the virtual digital assets umbrella, they might include cryptocurrency.