Speaking in the Lok Sabha on Monday, Finance Minister Nirmala Sitharaman said that the Reserve Bank of India (RBI) has once again suggested making a framework to regulate cryptocurrencies. The Indian government is also looking for an international collaboration if such a ban or regulation has to be put into effect, said Sitharaman.

“In view of the concerns expressed by RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, RBI has recommended framing of legislation on this sector. RBI is of the view that cryptocurrencies should be prohibited,” said the Finance minister.

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Members of lower houses said that the cryptocurrencies are considered borderless and that is why international collaboration will become mandatory at some point in time to prevent regulatory arbitrage. . “Therefore any legislation for regulation or banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards,” she said.

While replying to a question, about whether the RBI has issued instructions, circulars, directions, warnings, etc., regarding restricting the issuance, buying, selling, holding, and circulation of Cryptocurrency in India during the last ten years, Sitharaman said, “RBI has been cautioning users, holders and traders of Virtual Currencies (VCs) vide public notices on December 24, 2013, February 01, 2017, and December 05, 2017, that dealing in VCs is associated with potential economic, financial, operational, legal, customer protection and security related risks. RBI had also issued a circular on April 6, 2018, prohibiting its regulated entities to deal in virtual currencies (VCs) or provide services for facilitating any person or entity in dealing with or settling VCs.”

 She further said that the RBI, with its circular dated May 31, 2021, has also advised its regulated entities to continue to carry out customer due diligence processes for transactions in VCs, in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under Prevention of Money Laundering Act (PMLA), 2002, etc., in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.

 “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 destabilizing effect on the monetary and fiscal stability of a country,” she added.

(inputs from ANI)