Jai Sahu
Crypto assets backed by fiat currencies could be regulated by the Reserve Bank of India (RBI), according to separate documents.
The Securities and Exchange Board of India (SEBI) has suggested that multiple regulators oversee cryptocurrency trading, showing openness to the use of private virtual assets. This stands in contrast to the Reserve Bank of India (RBI), which views private digital currencies as a macroeconomic risk.
Documents seen by Reuters, submitted to a government panel tasked with formulating financial policy, reveal these differing stances. SEBI’s position on this matter has not been reported before.
Since 2018, India has taken a hard stance against cryptocurrencies. The central bank initially prohibited financial intermediaries from dealing with crypto users or exchanges, a move overturned by the Supreme Court. In 2021, the government drafted a bill to ban private cryptocurrencies, though it has not been introduced. Last year, India, as the G20 president, called for a global regulatory framework for these assets.
The RBI favors banning stablecoins, according to a source familiar with the panel’s discussions. This source, who wished to remain anonymous, noted that the panel aims to finalize its report by June.
Stablecoins are designed to maintain a stable exchange rate with fiat currencies, reducing volatility.
SEBI, however, recommended that various regulators oversee crypto activities within their domains, avoiding a single unified regulator for digital assets. SEBI suggested monitoring cryptocurrencies that resemble securities and Initial Coin Offerings (ICOs). It could also issue licenses for equity market-related products.
This approach mirrors the U.S., where the Securities and Exchange Commission oversees tokens classified as securities and crypto exchanges.
Crypto assets backed by fiat currencies could fall under the Reserve Bank of India’s regulation.
The Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) should regulate insurance and pension-related virtual assets.
SEBI also recommended that investor grievances in cryptocurrency trading be resolved under India’s Consumer Protection Act.
Neither SEBI nor the RBI responded to requests for comment. The finance ministry, IRDAI, and PFRDA also did not respond.
Fiscal Policy Risks
The RBI expressed concerns about cryptocurrencies leading to tax evasion and the reliance on voluntary compliance in decentralized peer-to-peer (P2P) activities, posing risks to fiscal stability.
Cryptocurrencies could result in the loss of “seigniorage” income, the profit a central bank makes from money creation.
After the Supreme Court struck down the RBI’s 2018 orders, the central bank asked financial institutions to comply with strict money laundering and foreign exchange rules, keeping cryptocurrencies out of India’s formal financial system.
Despite this, crypto trade flourished. In 2022, the government introduced a tax on crypto transactions to discourage trading and required all exchanges to register locally before facilitating transactions within the country.
A December PwC report noted that 31 countries have regulations allowing cryptocurrency trading.