India has the second-highest cryptocurrency adoption rate, worldwide.
But despite the digital tokens’ popularity, Indian lawmakers are still figuring out how to deal with the virtual asset’s status in the country, and many have called for stricter regulation of crypto, or even an outright ban.
T. Rabi Sankar, the deputy governor for India’s central bank, the Reserve Bank of India (RBI), made his stance clear: “Banning cryptocurrency…is the most advisable choice for India,” he said in a Monday speech at a banking conference.
Sankar likened the digital tokens to a “Ponzi scheme…and may even be worse,” according to Bloomberg. Cryptocurrencies, the central bank governor explained, can’t be defined as a currency, asset, or commodity, given that the tokens don’t hold any “intrinsic value” and “have no underlying cash flows.”
Cryptocurrencies undermine India’s financial integrity, he said, and can “wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy.”
Sankar’s tough words for the digital tokens come amid an explosion in cryptocurrency adoption among Indian citizens. The country’s crypto market is one of the fastest-growing in the world, and surged 641% in the year ended June 2021 measured by the total amount of crypto flowing into the country, says an October 2021 report by crypto and blockchain research firm Chainalysis. India has the second-highest number of crypto users worldwide, just after Vietnam.
Indian lawmakers have frequently voiced their concerns over the private, deregulated cryptocurrencies market. Last November, Indian Prime Minister Narendra Modi said that cryptocurrencies have the power to “spoil [India’s] youth”; while the RBI flagged its concerns over crypto’s destabilizing effects on the economy and financial system. Like other countries, India is pushing for the development and adoption of its own central bank–backed digital currency (CBDC), rather than cryptocurrencies.
But the Indian authorities haven’t yet passed any regulation on cryptocurrency trading. In March 2020, India’s Supreme Court rejected an RBI order to ban crypto transactions.
Earlier this month, the government announced a new plan to tax crypto assets just as it “treat[s] winnings from horse races, or from bets and other speculative transactions,” India Finance Secretary T.V. Somanathan told Bloomberg. The tax will come into effect on April 1, 2023.
The new rules on taxing crypto divided enthusiasts of the digital currency: Some say the tax plan indicates the government is open to regulating the asset, instead of banning it outright.
In the first half of the year, India’s Parliament is set to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill, which will determine which digital assets will be legally allowed for trade. Raj Kapoor, founder of the India Blockchain Alliance, told Fortune earlier this month that the fine print of this new legislation will provide clarity on how India’s crypto sector will be regulated in the years to come.
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