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India’s central bank wants to ban cryptocurrencies, government says – londonbusinessblog.com

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India’s central bank believes “cryptocurrencies should be banned,” the government told parliament on Monday, raising uncertainty about the future of the nascent virtual digital asset in the world’s second-largest internet market.

Nirmala Sitharaman, India’s finance minister, said on Monday that the Reserve Bank of India has expressed concern about the “destabilizing effect of cryptocurrencies on a country’s monetary and fiscal stability” and recommended “the drafting of legislation on these issues.” industry,” she said.

“RBI believes that cryptocurrencies should be banned,” she added.

But formulating legislation to regulate or ban crypto will require “significant international cooperation”, she added: (PDF). The government formulated its justification in response to a series of questions posed by Tholkappiyan Thirumavalavan, a member of parliament, in the Lok Sabha, the Indian lower house.

“Cryptocurrencies are by definition borderless and require international cooperation to avoid regulatory arbitrage. Therefore, any regulation or prohibition legislation can only be effective after significant international cooperation in evaluating the risks and benefits and the evolution of common taxonomy and standards,” she added.

Sitharaman’s response further challenges the adoption of cryptocurrencies and platforms that enable innovation in the nation.

India’s move to tax transactions and gains related to crypto trading earlier this year was seen as a move by the Indian central bank to embrace the burgeoning nascent technology. But in recent months, Indian banks have been sending different signals to industry players.

India’s central bank continues to force the hand of banks to engage with crypto platforms in India, a move that has made the advance for the companies a nightmare, according to people familiar with the matter.

Coinbase shut down its trading service in India earlier this year due to “informal pressure” from the Reserve Bank of India, Brian Armstrong, crypto exchange chief executive said. In addition, local exchanges and other crypto companies have seen a sharp drop in trading volume in recent months, partly due to the local tax law.

The Internet and Mobile Association of India, an influential 18-year-old lobbying group in India, turned its back on crypto advocacy last week, citing regulatory uncertainty.

India’s central bank has been consistent with its crypto stance.

In February, a top official at India’s central bank compared cryptocurrency to a “Ponzi scheme” and in his sharpest criticism suggested an outright ban. T. Rabi Sankar, deputy governor of the Reserve Bank of India (RBI), told an audience at a banking conference that cryptocurrencies were “developed specifically to circumvent the regulated financial system” and are not supported by any underlying cash flow.

“We have also seen that cryptocurrencies cannot be defined as currency, assets or commodities; they have no underlying cash flows, they have no intrinsic value; that they are related to Ponzi schemes, and maybe even worse,” he said.

“As a store of value, cryptocurrencies such as bitcoin have delivered impressive returns so far, but so have tulips in the 17th-century Netherlands. Cryptocurrencies are very similar to a speculative or gambling contract that works like a Ponzi scheme. It has even been argued that the original scheme devised by Charles Ponzi in 1920 is better than cryptocurrencies from a social perspective.

Sitharaman recalled that the Reserve Bank of India has been warning users, holders and traders of virtual currencies since December 2013.

“Further, in its circular dated May 31, 2021, RBI has also advised its regulated entities to continue to conduct due diligence processes for transactions in VCs, in accordance with the regulations regarding Know Your Customer (KYC) standards. ), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT), obligations under the Prevention of Money Laundering Act (PMLA), 2002, etc. in addition to ensuring compliance with the relevant provisions of the Foreign Exchange Management Act (FEMA) for foreign remittances,” she said. added.

This is a story in development. More to follow…

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