On July 19, India’s Finance Minister Nirmala Sitharaman said in a speech at the Lok Sabha, the lower house of India’s bicameral Parliament, that crypto is a danger to international regulatory arbitrage and that they should be blocked or banned.
Sitharam explained that any attempt to regulate or ban crypto should be global because cryptocurrencies are borderless. But the decentralized nature of crypto transactions and the fact that they operate outside of the traditional financial system has made task extremely hard for regulators.
According to Sitharaman, there should be international collaboration to assess the risks and benefits that cryptocurrencies pose for the global monetary policy. She further stated that, unlike fiat money, cryptocurrencies have no value beyond being used for speculation.
“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,”
A “Clear Danger” To The Economy
Shaktikanta Das, Governor of the Reserve Bank of India, said in the bank’s annual report that cryptocurrencies are a “real danger,” and given their lack of any real value beyond pure belief, they can only be considered as a speculative tool with “a sophisticated name.”
“We must be mindful of the emerging risks on the horizon. Cryptocurrencies are a clear danger. Anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name”
The RBI is therefore recommending formulating a proper legislative framework to limit the cryptocurrency industry. Even though the finance minister thinks they should be banned.
India Uses Taxes to Fight The Crypto Industry
The regulatory burdens imposed by the RBI seem to have hurt the local crypto industry enough to cause a similar effect as a plain ban. As CryptoPotato recently reported, the Reserve Bank of India imposed a tax on citizens’ crypto-earned income of up to 30%. This heavily impacted the growth and stability of the cryptocurrency exchanges that were operating in the country.
On July 01, the transactional volume of Binance in India dropped by more than 63% from the $14.5 million it was moving a day before the new cryptocurrency tax law came into effect.
These measures have already caused other smaller exchanges, such as Vauld, to be forced to suspend withdrawals, transactions, and deposits on their platform due to “financial difficulties.”
Despite its anti-crypto policy, the ReserveBank of India is actively working on the development of a Central Bank Digital Currency. The idea so far is to go for a gradual implementation that will not disrupt the traditional financial system.
The RBI has not disclosed which technology it will use to develop a CBDC, however, the blockchain has played a starring role among other central banks, even though the general consensus is to opt for a closed chain where all nodes are controlled by local governments.