Reserve Bank of India. (File photo)The Reserve Bank of India has been a vocal critic of cryptocurrency, calling it a tool for money laundering not once but several times. On Thursday, Reserve Bank Governor Shaktikanta Das described cryptocurrencies as a “clear danger” and said that anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.
The central bank has repeatedly warned users, holders, and traders of virtual currencies about the potential financial, operational, legal, customer protection, and security-related risks they are exposing themselves to. As TDS implementation rules kick-off starting today, we take a look at the RBI’s stance on cryptocurrency in India.
The warnings
In 2013, RBI issued a circular warning to the public against the use of virtual currencies. The circular asked traders to stay away from cryptocurrency trading as crypto is a volatile market and warned about all the risks associated with trading in digital assets. It even pointed out that it has been keeping a close eye on developments in the virtual currency world, including Bitcoins, Litecoins, and other altcoins. It also raised doubts about the number of investors trading on cryptocurrencies and their claimed market value.
On February 1, 2017, RBI released another circular, reiterating its concerns with virtual coins. And by the end of 2017, a warning was issued by RBI and the finance ministry clarifying that virtual currencies are not a legal tender.
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A blanket ban on cryptos
Former RBI deputy governor BP Kanungo and then Central Board of Direct Taxes (CBDT) chairman Sushil Chandra voiced their opinions in favour of a ban on cryptocurrencies. Chandra said it creates “a chain of black money.” He also mentioned that searches conducted into exchanges dealing with virtual currencies had revealed that most uninformed people in interior places are being lured to buy it.
On April 6, 2018, RBI issues a circular asking commercial and co-operative banks, payments banks, small finance banks, NBFCs, and payment system providers from dealing in virtual currencies, or providing services to all entities which deal with crypto exchanges.
‘Cryptos value is equal to nothing’
In November 2021, Governor Shaktikanta Das reiterated his views against cryptos and said that it poses a serious threat to the financial system since they are regulated by central banks. His comments came ahead of RBI’s internal panel.
RBI deputy governor T Rabi Sankar in February noted that banning private cryptocurrencies is the best option for the country. Sankar was speaking at the IBA Banking Technology Awards. “They (cryptos) threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporations creating these currencies or governments that control them,” Sankar said. “All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India.”
Earlier in May, Governor Das said cryptos pose a serious threat to any financial system since they are unregulated by central banks. This was the time when the RBI announced its intent to come out with an official digital currency. Shaktikanta Das said people would have raised questions after the cryptocurrency market crash had the RBI been regulating the digital assets by now.
“We have been cautioning against crypto and look at what has happened to the crypto market now. Had we been regulating it already, then people would have raised questions about what happened to regulations,” Das told CNBC TV18 in an interview. “This is something whose underlying (value) is nothing. There are big questions on how you regulate it. Our position remains very clear, it will seriously undermine the monetary, financial and macroeconomic stability of India,” the RBI Governor added.
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