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India's central bank calls for cryptocurrency ban
It doesn't look, smell, or behave like money, but it's far more dangerous, says finance minister
India's Reserve Bank (RBI) wants cryptocurrency banned, according to a statement made in parliament on Monday.
The Bank's position emerged in an answer to a question on notice, delivered on Monday by finance minister Nirmala Sitharaman.
"In view of the concerns expressed by RBI on the destabilizing effect of cryptocurrencies on the monetary and fiscal stability of a country, RBI has recommended for framing of legislation on this sector. RBI is of the view that cryptocurrencies should be prohibited," Sitharaman declared. [PDF]
The Bank has previously shared its dislike for cryptocurrencies, labelling them a "clear danger" and "designed to bypass the financial system and all its controls, including Anti Money Laundering (AML)/Combatting the Financial Terrorism (CFT) and Know Your Customer (KYC) regulations."
RBI has developed a habit of issuing public notices warning users, holders and traders of the potential risks related with virtual currencies – which it believes range from security to operation, economic, legal and more. In April 2018, the regulatory body prohibited its regulated entities from dealing in virtual currencies or facilitating trades in the digi-dollars.
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According to Sitharaman, RBI does not view cryptocurrencies as currencies at all, as they are not issued by the central bank or government.
"The value of fiat currencies is anchored by monetary policy and their status as legal tender, however the value of cryptocurrencies rests solely on the speculations and expectations of high returns that are not well anchored, so it will have a destabilizing effect on the monetary and fiscal stability of a country," explained the minister.
Also of concern is the borderless nature of cryptocurrencies. Any legislation, regulation or banning of the alterna-cash would require "significant international collaboration" on both risk evaluations and the establishment of standards.
Such global efforts are underway. International financial body the Financial Stability Board (FSB) last week announced its intent to develop cryptocurrency rules. The FSB, of which India is a member, said it "will report to the G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other crypto-assets."
The RBI's opinion came after India's Internet and Mobile Association of India (IAMAI) last week disbanded its crypto advocacy committee in favor of working on India's central bank digital currency – an effort it feels will be more impactful.
India's enormous population means a crypto ban would deprive blockheads of a colossal market, and also dent the nation's cherished startup and fintech communities. Those sectors may well asked to wear some pain in the name of the financial stability of their host economy. ®