In 2013, RBI cautioned Indians regarding cryptocurrencies financial, security, and legal risks. After four years, Bitcoin, the first crypto of the world got launched. The opposition of RBI to cryptocurrency had become much stronger now. As partial restriction would not work on cryptocurrency, a complete ban was demanded by RBI. In 2018, RBI ordered banks never to facilitate cryptocurrency trade in India by effectively banning it. In 2020, the Supreme Court kept aside the order of RBI.Â
RBI favors a complete crypto ban. This has been conveyed by RBI to the central board. A proper presentation was made to the board. It highlighted major concerns related to financial and macroeconomic stability along with exchange management. To regulate intangible assets originating overseas, many challenges are faced. All these were also highlighted by the central bank. However, according to legal experts, it is not possible to receive legal tender for cryptos but it is no more possible to completely ban it. To know more, click here.
Increase in the opposition by RBI
- According to RBI if crypto gets recognition, it will create a bad impact on the financial system.Â
- It will be shaking the base of the present financial system.Â
- A reduction may be seen on the importance of the bank or regulatory agencies.
- Also, it will be challenging to trace the transactions of cryptos and thus there will be an increase in black money flow.Â
Growth of risks related to foreign exchange
- If private cryptos receive approval, then the risk related to foreign exchange will be significantly increased.Â
- This risk will be significantly increasing with cryptocurrencies approval.Â
India and China will be together by banning cryptocurrency
- Among the two sections within the Indian government, one believes that India will be separated from the entire world if a complete ban is imposed on cryptos.
- In China, there is a complete ban on cryptocurrencies. Thus China and India will be on the same page.
No clear idea about foreign exchange
- The industry of cryptocurrency is too waiting for the governments opinion about tax laws and foreign exchange.Â
- Under Foreign Exchange Management Act, goods or services movements across borders are classified as import or export.Â
- If there is movement crossing the border, import or export duty is applicable on all products and services.Â
- But it is not clarified by the regulations if cryptocurrency tokens add up to goods or under which category the exchange of crypto falls.
Doubts regarding the complete crypto ban
- According to legal experts, the approach of government needs to have a balance so that it does not hurt any investor and not allow its uncontrollable growth because it may threaten the foreign exchange reserve of the country and cause economic disruptions.Â
- Crypto is being viewed as an instrument of investment by the government.
- They plan to regulate this digital asset.Â
- Crypto is expected to be treated as assets and thus attract capital profits. Â
- The law position is not transparent in areas of GST or TDS.Â
- There is a requirement for comprehensive regulation.Â
- It will never be fair comparing the policy attitude taken by India on cryptocurrency with that of other developed countries such as the UK that is picking an approach of piecemeal regulation because of differences in regulations of foreign exchange.Â
- India is a market that is regulated by foreign exchange.Â
- Hence certain decisions can never be taken similarly as developed countries having free markets.Â
- Regulators will be finding it challenging to prevent cryptocurrency payments abroad by Indians.Â
Conclusion
RBI has been resisting crypto constantly because it has huge concerns about its financial stability. The monetary policy of the central bank will be less productive if the free movement of crypto is allowed. Banks or other regulated entities will also be undermined by virtual currencies. Also crypto is volatile. In India, it will be a big challenge to manage the risk of foreign exchange as money will be flowing in through digital currency and not as dollars. Besides, greater threats will be faced by emerging or developing counties. Cryptocurrency bills or other amendments were not yet introduced and according to the Prime Minister of India cryptocurrency must be used for empowering democracies and not undermining them. But the finance minister mentioned that crypto will never be accepted as payment in the country.