There should be no two opinions about banning them
Reserve Bank of India Governor Shaktikanta Das has predicted that the next financial crisis will happen because of private crypto-currencies. Speaking at the Business Standard BFSI Insight Summit, he claimed that those private crypto-currencies have no “underlying” value and pose risks for macroeconomic and financial stability.
“Crypto-currency has certain huge inherent risks for our macroeconomic and financial stability, and we have been pointing it out. After looking at the latest episode of FTX. I don’t think we need to say anymore,” the RBI governor said.
He further said that, unlike any other asset, or any other product, “our main concern about the crypto currencies is that it does not have any underlying whatsoever”. He reiterated that crypto currencies should be prohibited because if it is allowed to grow then, “mark my words, the next financial crisis will come from private crypto-currencies”.
Even the earlier verdict from the Supreme Court, allowing transactions in private crypto currencies, is on account of absence of any definite stand of the government on the issue involved. In April 2018, the Reserve Bank of India enforced curbs for crypto trading in India. Crypto-currency exchanges scored a victory after the Supreme Court endorsed their stand against curbs put in place by the RBI that effectively outlawed virtual currencies in India. The verdict came on petitions by Internet and Mobile Association of India and others challenging the RBI circular that said the entities regulated by the RBI were prohibited by ‘providing any service in relation to virtual currencies, including those of transfer or receipt of money in accounts relating to purchase or sale of virtual currencies’.
While deciding the case, the Supreme Court said the following: “When the consistent stand of the RBI is that they have not banned virtual currencies and when the Government of India is unable to take a call despite several panels coming with several proposals, including two draft Bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”
On an earlier occasion, the RBI Deputy Governor T Rabi Sankar said that banning crypto-currencies is the most advisable choice for India as they are akin to Ponzi schemes and “may even be worse”.
However, a written reply provided by the Finance Minister Nirmala Sitharaman to a query in the Lok Sabha shows that the government is not serious about prohibiting crypto currencies. She replied that “RBI is of the view that crypto currencies should be prohibited. Crypto currencies are by definition borderless and require international collaboration to prevent regulatory arbitrage. Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards.”
But her stance that crypto-currencies can be banned only with international collaboration is not convincing. There is a possibility that the crypto currencies may be used for all sorts of anti-national and terrorist activities. There is no need to wait for any international collaboration to ban crypto currencies within our country. As rightly said by the Deputy Governor, it is like a Ponzi scheme and it should have been banned a long time back. At least now it should be banned, better late than never.
She wanted to bring crypto trade within the ambit of taxation. Taxation may make the crypto trade costly. According to a KuCoin report, despite the local government’s stance on digital assets and the levying of a 30 per cent tax on income received from digital assets, the Indian crypto currency market is expected to reach $241 million by 2030. When the RBI governor is emphatic in his view that crypto currency is going to be the instrument for next financial crisis, the policy makers must act quickly to ensure that our economy is insulated from such a crisis.
(The author is a retired banker)
