Crypto Regulation Only After Global Collaborative Risk Evaluation, Says Nirmala Sitharaman

Cryptocurrencies are "borderless" and would require collaborative evaluation with other countries before any legislation is passed on it, said Finance Minister Nirmala Sitharaman.

"...Therefore, any legislation for regulation or for banning can be effective only after significant international collaboration on evaluation of the risks and benefits and evolution of common taxonomy and standards," she said in a reply to queries on cryptocurrency regulation during the monsoon session of parliament on Monday.

The Reserve Bank of India, she said, is of the view that cryptocurrencies must be prohibited.

The central bank has raised concerns over cryptocurrencies in the past. In April 2018, the RBI had issued its first circular prohibiting regulated entities from dealing in virtual currencies or providing services for facilitating any person or entity in dealing with or settling virtual currencies.

The central bank maintained that cryptocurrencies are not a currency because it is not issued by them and its value rests on speculation rather than monetary policy. It predicted that cryptocurrencies will have a destabilising effect on the monetary and fiscal stability of the country.

The draft Cryptocurrency Bill, 2019 stated that holding, mining, selling, issuing, transferring or use of cryptocurrency was punishable with a fine or imprisonment of up to 10 years, or both.

But in March 2020 after the apex court removed the ban on cryptocurrencies, the finance ministry instructed the RBI and the market regulator to spread awareness about cryptocurrencies.

According to an RBI circular in May 2021, the central bank advised its regulated entities to continue to carry out customer due diligence processes for transactions in virtual currencies, in line with regulations governing standards for know your customer, anti-money laundering, combating of financing of terrorism, obligations under the Prevention of Money Laundering Act, 2002. That was in addition to ensuring compliance with relevant provisions under the Foreign Exchange Management Act for overseas remittances.

As of now, while virtual currencies aren't banned, they are taxable. Sitharaman in her budget speech had announced that any transfer of any virtual currency/cryptocurrency asset will be liable to 30% taxation.