RBI Maintains Negative Crypto Rhetoric
According to a report by Bloomberg, Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), made the inflammatory statement while speaking at a banking conference.
Sankar further criticized cryptocurrencies, stating that trading them could “wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy.”
An excerpt from the RBI executive’s statement said:
“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse.”
Sankar added that cryptocurrencies were developed to circumvent control from the government, which is a reason to treat them with caution. For the RBI official, banning cryptocurrency was a sensible option for the Indian government to adopt.
Sankar’s negative rhetoric toward the crypto sector echoes an earlier statement made by Shaktikanta Das, the Governor of India’s central bank, who warned that Indians were investing in cryptocurrencies at their own risk. He stated that cryptocurrencies “have no underlying (value)–not even a tulip.”
Das’s mention of the tulip refers to a period between 1634 and 1637, when the value of Dutch tulip bulbs rose to exorbitant levels before crashing. Famously known as “Tulip mania,” the event is often recognized as the first market bubble in history.
India Looking to Issue Digital Rupee
These comments from RBI top executives come after India’s Finance Minister Nirmala Sitharaman proposed a 30% tax on income from the transfer of cryptocurrency.
Sitharaman also suggested a one percent tax deducted at source (TDS) to capture crypto transaction details and would also impose taxation on digital asset gifts in the hands of the recipient.
According to the Finance Minister:
“There has been a phenomenal increase in transactions in virtual digital assets. The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime.”
While stakeholders in the cryptocurrency industry saw the crypto tax proposal as a positive move, some expressed concerns about the 30% levy, which was considered high. Others said the proposed tax policy needed more clarity before implementation.
Despite the Supreme Court of India’s ruling back in March 2020 which overturned a ban by the RBI, Indian crypto businesses still struggle due to a lack of clear-cut regulations.
Interestingly, the country accounts for the second-highest crypto adoption rate after Vietnam, according to a Chainalysis report in October 2021.
Although the RBI continues to view cryptocurrency as a threat to financial stability, the Indian central bank is preparing to launch a central bank digital currency (CBDC). The RBI announced in November 2021 that it was considering a digital rupee pilot later in 2022.
Apart from the crypto tax proposal, Sitharaman also revealed that the Indian apex bank could issue a digital rupee between 2022 and 2023. The Finance Minister said:
“Introduction of Central Bank Digital Currency (CBDC) will give a boost, a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system.”
Though the conflict between Indian crypto-adopters and India’s banks and government persists, the potential issuance of a digital rupee signals hope for the country’s full embrace of cryptocurrency.