Banning crypto most advisable option, says RBI Deputy Gov even as Fin Min looks to impose 30pc tax

In a keynote address at the Indian Banks Association 17th Annual Banking Technology Conference and Awards, Shri T Rabi Sankar, Deputy Governor, The Reserve Bank of India (RBI) argued in favour of banning cryptocurrency in India, labelling it as "perhaps the most advisable choice open to India."

Sankar made the statement just two weeks after Finance Minister Nirmala Sitharaman announced income from the transfer of crypto will be taxed at the rate of 30 percent. Just yesterday, Sitharaman had said the Finance Ministry and the RBI are in "complete harmony" around their discussions on crypto.

Despite the Ministry's approach in favour of taxing crypto, Sankar batted for banning them altogether, stating:

"We have seen that crypto-technology is underpinned by a philosophy to evade Government controls. Cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution."

He added, "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. These should be reason enough to keep them away from the formal financial system."

According to him, crypto undermines financial integrity, especially the KYC and AML/CFT regulations. He also maintained that "they can (and if allowed, most likely will) wreck the currency system, the monetary authority, the banking system, and in general the Government’s ability to control the economy."

"They threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates creating these currencies or Governments that control them. All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India. We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stand up to basic scrutiny," he said.

In the meantime, the government and RBI have also been discussing the implementation of Central Bank Digital Currency in India - a move announced during Sitharaman's Union Budget speech earlier this month.

During the speech, the Minister had proposed launching "digital rupee using blockchain and other technologies issued by RBI, starting 2022-23."

The digital rupee would be a Central Bank Digital Currency (CBDC), and Sitharaman said it will "give a big boost to the digital economy." Such a digital currency would lead to an efficient and cheap currency management system, she added.

A CBDC is the virtual form of a government’s fiat currency, and is issued and regulated by local authorities. It is run on a digital ledger system, which may or may not be blockchain-based. In India's case, Sitharaman's announcement indicates it will be blockchain-based.