Although the Indian government remains accommodative in the use of digital currencies as an asset class, the RBI said that a partial ban is not enough.
The Indian central bank board has highlighted some”serious concerns” stating cryptos can undermine the country’s financial stability.
Indian central bank – Reserve Bank of India (RBI) – seems to be pouring cold water on the government’s attempts to legalize crypto. On Saturday, December 19, the RBI appraised the central board members that it is in favor of a complete crypto ban.
In its detailed presentation to the board members, the Indian central bank cited “serious concerns” relating to financial stability and other macroeconomic factors. the board thus recommends a complete ban stating that a partial ban won’t work.
During their meeting with RBI governor Shaktikant Das last Friday, the board members discussed these concerns with the use of crypto. Some of the major concerns have been high valuations, traceability of crypto transactions, identifying the participants in the transactions, legal issues, and much more. Furthermore, the RBI also highlighted the issue of crypto exchange management.
The Indian central bank has been more or less critical about the use of digital assets. Back in 2018, it was instrumental enough in forcing local banks to cut ties with crypto exchanges. This dried up liquidity to a big scale on the Indian exchange up until the March 2020 crash.
Later the Supreme Court intervened in favor of the local crypto investor community stating that the RBI cannot be indecisive for a long time, and thus announced lifting the ban. Post that, there’ been a massive liquidity influx from Indian investors over the last 18 months.
Indian government’s stand on crypto
The Indian government led by PM Narendra Modi said that it has been working on a crypto bill. The government said that it will allow the use of cryptocurrencies as an asset class. But it won’t allow the use of cryptocurrencies as a means of payment.
The government decided to implement the crypto bill during this Winter Session of the Parliament. However, the decision for the same seems to be postponed as of now. It looks that the Indian government is looking for a more accommodative approach instead of a complete ban. Some reports also suggest that the Indian government might impose some regulations. However, it won’t be moving towards a complete ban.
On the other hand, the Indian government is also working on the country’s own central bank digital currency (CBDC) – Digital Rupee. This step is in line with other big economies that are working on similar CBDC plans. The India PM has asked for a collective effort from all global democracies to regulate the crypto market.
IMF Chief Gita Gopinath recently said that cryptocurrencies are proving a challenge for emerging economies. She also called for an urgent need to regulate digital assets. Gopinath added:
I think cryptocurrencies are a particular challenge for emerging markets. It would seem that cryptocurrencies are more attractive for emerging markets compared to developed economies. However, emerging markets have exchange rate controls, capital flow controls, and cryptocurrencies can impact that.
A lot of exchanges are offshore and not subject to the regulation (of a country)… We need a global compact as no individual country can do it… we need it urgently.
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