As a seasoned researcher who has closely followed the global financial landscape for over two decades, I find myself intrigued by India’s ongoing saga with cryptocurrencies. Having witnessed similar rollercoaster rides in other emerging markets, I can say with some degree of certainty that the dance between regulation and innovation is a universal one.
Indian regulatory bodies are contemplating a prohibition on digital currencies such as Bitcoin and Ether, while advocating for increased adoption of the digital Indian Rupee instead.
According to reports from the Hindustan Times on October 22nd, two sources close to the situation stated that the government has discussed the issue of private cryptocurrencies, including stablecoins, with crucial institutions and regulatory bodies. Their findings suggest that the potential risks associated with these digital currencies are greater than the advantages they provide.
A high-ranking official stated that Central Bank Digital Currencies (CBDCs) possess similar functionalities as cryptocurrencies. Furthermore, they emphasized that CBDCs offer more advantages compared to cryptos, while minimizing the inherent risks linked to privately issued digital currencies.
Before the release of a upcoming policy paper, it’s said that confidential talks regarding the topic took place among undisclosed parties, who are likely involved in the government.
This year, it was disclosed that a joint committee comprising key financial institutions such as the Reserve Bank of India (central bank) and the Securities and Exchange Board of India (market regulator), under the leadership of India’s Economic Affairs Secretary, Ajay Seth, has been drafting a document to outline the government’s stance on digital currencies like cryptocurrencies.
The scheduled publication of the paper for September has been postponed, leaving uncertainty as to whether it’s the same policy document being discussed now.
In July 2023, Seth mentioned the IMF-FSB synthesis paper which recommended against an immediate prohibition of digital currencies. Instead, it suggested a more balanced regulatory strategy. This approach was later embraced by India’s finance ministers and central bank heads, as well as other G20 nations, during that same year.
As an analyst, I’d like to point out a crucial finding from this study: Countries maintain the power to enforce more stringent rules and regulations, given their unique situations and circumstances.
The IMF-FSB synthesis paper suggests setting a minimum standard for regulation, but this doesn’t prevent countries from imposing stricter controls, even up to a full prohibition, as the second official noted.
A final decision on the matter will be made following further consultations, the report noted.
Even though they maintain a negative view on cryptocurrencies, this individual remains hopeful regarding the potential of blockchain technology. They highlighted several positive applications for society, including improving financial accessibility, digitizing government bonds, and streamlining the distribution of subsidies in a more targeted manner.
India’s history with crypto
India’s journey with cryptocurrency has been quite a roller coaster. Back in 2018, the Reserve Bank of India prohibited banks from dealing with crypto transactions. However, in 2020, the Supreme Court overruled this ban, providing another opportunity for the crypto sector to thrive.
Ever since then, the topic of regulation has seen an ongoing debate, with the possibility of a ban continuing to be raised, while India ponders over the development of its Central Bank Digital Currency (CBDC).
As an analyst, I’d rephrase last week’s statement by the RBI Governor, Shaktikanta Das, as follows: Last week, I underscored the potential advantages of Central Bank Digital Currencies (CBDCs), while expressing my ongoing apprehensions regarding cryptocurrencies. In maintaining our stance, we at the Reserve Bank of India believe that digital assets such as Bitcoin may pose risks to the economic stability of our country.
In simpler terms, India’s Finance Minister, Nirmala Sitharaman, strongly disapproves of cryptocurrencies serving as a form of currency. However, she is open to the idea of regulating them.
Currently, the securities regulatory body, SEBI, has proposed a collaborative strategy involving multiple agencies for the regulation of cryptocurrencies. Earlier this year, they submitted their recommendations on this matter to the finance ministry.
Currently, India lacks a comprehensive regulatory structure for cryptocurrencies, but it has implemented a 30% tax on crypto earnings and a 1% Tax Deducted at Source (TDS). Furthermore, regulatory bodies have stepped up surveillance of the crypto trading market, mandating that crypto service providers obtain licenses from the Financial Intelligence Unit.
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2024-10-22 13:58