RBI has, time and again, highlighted that crypto, if legalised, could lead to massive financial problems.(Representative image)
Following continuous warnings by the Reserve Bank of India (RBI) on risks associated with cryptocurrencies, industry experts are expecting that the government will introduce additional measures in the Union Budget.
They are of the opinion that RBI’s stance on cryptocurrencies has been one of caution, considering the nature of this digital asset. As a result, experts said they expect some tightening measures to be introduced in the Union Budget.
Srinath Sridharan, a financial expert and visiting fellow at the Observer Research Foundation, in a report, explained: “From a regulatory perspective, crypto assets are currently seen with suspicion about their intent of existence, as well as being observed as overtly speculative assets, without any underlying value to it.”
RBI has, time and again, highlighted that crypto, if legalised, could lead to massive financial problems.
On January 13, RBI Governor Shaktikanta Das said that crypto is poor gambling and can undermine the power of the central bank if allowed to grow unchecked.
“If crypto is allowed in India, RBI will lose control over monitoring transactions. Crypto, masquerading as a financial asset, is a completely misplaced argument,” said Das speaking at an event in Mumbai.
In addition to this, RBI has been proactive in keeping a check on crypto exchanges which have been active in either direct or indirect involvement with money laundering activities.
Echoing this sentiment, Chandan Sinha, former executive director of RBI, highlighted that one may expect some measures but not large ones.
“Concerning the risks associated with issues like money laundering and other protective measures (surrounding) cryptocurrencies, one may see some measures. Other than that, the existing deterrent from the regulator is fine for now,” Sinha said.
The Union Government in the 2022-23 Budget proposed that gains from cryptocurrencies be taxed at 30 percent with 1 percent tax deducted at source (TDS) on every transfer.
Finder, a data analysis platform, in its Cryptocurrency Adoption Index 2022 report, stated that crypto ownership is highest among active crypto trading countries. Looking at the tax regulations in place and the high number of crypto traders, it is expected that the Union government may work to bring in additional regulatory measures in the Budget.
Also, in December 2022, Das said that the next financial crisis will be caused by private cryptocurrencies, if these assets are allowed to grow. Earlier in 2017, the Union Finance Ministry, along with RBI, had issued a warning that virtual currencies are not legal tender.
Concerning this, industry experts are expecting that the Union Budget may introduce some regulatory measures for cryptocurrency.
“RBI has not been against cryptocurrencies. One could expect regulations in the near future, but it is hard to predict what it could be,” said a former top official of the apex bank.
Echoing the same, Nandkishor Desai, a former banker with SBI, said that RBI’s stance towards crypto has been strict, and hence, one could expect additional regulatory moves around crypto exchanges.
Will the crypto Bill become an Act?
In 2021, the Union government introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, under which all private cryptocurrencies were to be prohibited, with certain exceptions.
Experts highlighted that the government primarily worked on promoting the technology of cryptocurrency and its uses, but failed to address the legality of cryptocurrency.
“The Bill actually has missed its twists and turns in the parliamentary debate, and instead is playing it out in the form of media statements, speeches, and undue public speculation,” Sridharan opined.
Highlighting the inaction on implementing the Bill, experts said that it is unlikely that the government will work on enacting it into an Act or law.
Mirza Faizan Asad, a cyber-security lawyer, said: “After the primary cautionary measures for regulating cryptocurrencies, the roadmap for legislation is still not clear. The Bill is unlikely to be worked on.”
CBDC as an alternative
In October 2022, RBI released a concept note on preparing a map for introducing the awaited central bank digital currency (CBDC). E-rupee, as it is also called, was pitched as a counter to the existing cryptocurrencies by the RBI.
In November, RBI launched the pilot for wholesale CBDC, and one month later, it launched the pilot for retail CBDC.
Citing the dangers of cryptocurrency while working extensively on introducing the CBDC to the larger audience, experts noted that RBI is working towards bringing CBDC as an alternative to cryptocurrencies.
“Looking at the government’s inaction towards the Bill, they will not work on implementing it, but would rather work on promoting the e-rupee,” Asad said.