RBI Governor’s Cryptic Remarks on Cryptocurrency at Davos Stir Debate

Sebi proposes regulating cryptocurrencies as securities, similar to the US SEC's approach

At the World Economic Forum in Davos earlier this year, Reserve Bank of India (RBI) Governor Shaktikanta Das made an uncharacteristically cryptic comment regarding the future of cryptocurrency in India, describing it simply as “very bad.” This remark came shortly after the US Securities and Exchange Commission (SEC) approved Bitcoin exchange-traded funds. Das emphasized that while the US SEC's decisions are for their nation's benefit, the RBI must prioritize India's well-being. The RBI has consistently opposed cryptocurrencies, citing concerns such as tax evasion, decentralized peer-to-peer activities, and loss of "seigniorage" income — the profit a central bank earns from money creation. Additionally, the central bank has flagged risks of terrorism funding and money laundering, highlighting potential threats to fiscal stability. Amidst this backdrop, a recent report indicates that the Securities and Exchange Board of India (Sebi) has recommended regulating cryptocurrencies through multiple regulators. Sebi chairperson Madhabi Puri Buch has been advocating for T+0 settlement in domestic markets to prevent funds from moving towards cryptocurrencies and other unregulated assets, which offer anonymity, tokenization, and instantaneous settlement.

Sebi proposes regulating cryptocurrencies as securities, similar to the US SEC's approach, including oversight of initial coin offerings (ICOs) and licensing for equity market-related products. It also suggests addressing investor grievances under India's Consumer Protection Act. Both Sebi and RBI present compelling arguments. The government's challenge lies in either embracing cryptocurrencies as a reality or sidelining them due to the "fear of the unknown." Presently, the Indian government appears aligned with the RBI's stringent stance, implementing measures like a 30% tax on capital gains from cryptocurrency transactions and a 1% tax deducted at source on all sales, regardless of profit or loss.