one in Meeting chaired by Prime Minister Narendra Modi Until recently, the central government and the Reserve Bank of India (RBI) were not on the same page on cryptocurrency – a sector that has been quietly blossoming in India over the past few months. RBI Governor Shaktikanta Das reiterated the central bank’s concerns about the digital token and its craze in India despite not being recognized as a currency that day. On the other hand, the Modi government and its departments plundered for a strong regulatory control over cryptocurrencies To prevent money laundering and terror financing rather than ban it completely.
“The government is aware of the fact that this is an evolving technology, it will keep a close watch and take proactive steps. There was also a general consensus that the steps taken by the government in this area would be progressive and forward-looking.”
The RBI has repeatedly reiterated its strong views against the cryptocurrency ever since it gained popularity in India following the sudden spurt in bitcoin prices. The central bank argues that cryptocurrencies pose a serious threat to the country’s macroeconomic and financial stability. RBI cast doubt on the number of investors trading on them as well as their claimed market value. Das on Wednesday reiterated his view against allowing cryptocurrencies, saying they pose a serious threat to any financial system as they are unregulated by central banks.
The RBI is primarily concerned about cryptocurrencies given the potential threat to the Indian rupee. If a large number of investors invest in digital coins instead of rupee-based savings such as provident funds, the demand for the latter will fall. This will hamper the ability of banks to lend money to their customers. Moreover, since cryptocurrencies are unregulated and difficult to trace in the country, the government will also not be able to tax this amount, which could threaten the rupee. On top of that, cryptocurrencies can be used in money laundering and illegal activities. Crypto investors, for all these reasons, are susceptible to hacking, scams and losses as crypto coins are volatile in nature.
In 2018, RBI announced that banks would not be able to deal in cryptocurrencies, stopping the growth of the crypto industry in India. However, in early March 2020, the Supreme Court struck down an RBI circular banning cryptocurrencies. Subsequently, on February 5, 2021, the central bank constituted an internal panel to suggest the model for the central bank’s digital currency. An announcement about the decisions is expected next month.
But what is the way forward? While the RBI’s stance remains tough, it is actually exploring the possibilities of coming up with a digital currency. According to PTI, in the face of proliferation of cryptocurrencies like bitcoin, RBI had announced its intention to come up with an official digital currency. Private digital currencies/virtual currencies/cryptocurrencies have gained popularity over the past decade. Here, regulators and governments are skeptical about these currencies and are apprehensive about the associated risks.
Despite all the limitations and potential risks, more and more Indians are investing in cryptocurrencies. In October, a newspaper advertisement claimed that Indians had invested Rs 6 trillion in cryptocurrencies. But there is a contradiction regarding the number of people. Broker-choosers calculated the figure at 100.7 million, while WazirX CEO Nishal Shetty said there were around 15-20 million crypto investors in the country.
(with inputs from PTI)
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