RBI seeks ban on cryptos but India needs global support to make that effective: FM Sitharaman

The Reserve Bank of India (RBI) has recommended to the government that it should frame regulations for cryptocurrencies and prohibit them.

The government, however, seems to be of the view that a "global collaboration" is needed for any effective regulation or ban, Finance Minister Nirmala Sitharaman said in Parliament on July 18.

"In view of the concerns expressed by the RBI on the destabilising effect of cryptocurrencies on the monetary and fiscal stability of a country, the RBI has recommended for framing of legislation on this sector. The RBI is of the view that cryptocurrencies should be prohibited," the finance minister said in a written response to a question in the Lok Sabha.

Sitharaman went on to add that given the borderless nature of cryptocurrencies, international collaboration was required to prevent any kind of 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," she said.

Sitharaman's comments come amid speculation that the government could introduce legislation to regulate the crypto sector in the Monsoon Session of Parliament that began today. However, no such bill has been listed for introduction.

Even before the said bill, all eyes are on the crypto consultation paper the government is currently working on. The paper, which will likely outline the government's stance on crypto, was said to be "almost ready" in late May. However, it is still awaited.

The government has refused to make public its stance on crypto so far, with confusion even reigning over their classification: whether they are financial assets or fall in some other category, such as commodities. Instead, Sitharaman - as well as Prime Minister Narendra Modi - in recent months have called for joint global action to tackle the problems created by the use of crypto.

While legislation on crypto is awaited, the RBI has continued to work on its own digital currency, which it hopes to introduce this year. According to RBI Deputy Governor T Rabi Sankar, the Central Bank Digital Currencies (CBDC) could "kill" the reasons for the existence of private cryptocurrencies.