Why Crypto Currencies are 1 big matter of worry for RBI?

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6 months ago

Crypto Currency – Matter of Worry

Reserve Bank of India (RBI) Governor Mr. Sanjay Malhotra said that the central bank is much ‘concerned’ on cryptocurrencies as they can ‘hamper’ the country’s financial stability.

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While speaking to reporters after announcing the RBI MPC decisions, Sanjay Malhotra touched upon cryptocurrencies. He was asked about them in light of the Supreme Court’s observation on cryptocurrency last month.

Malhotra said that there has been no new development on cryptocurrencies. “There is no new development as far as crypto is concerned. A committee of the government is looking after this.”

Hon’ble Supreme Court’s view on Crypto Currency

The Supreme Court, in an observation on 19 May, did ask the Centre why it is not making a clear-cut policy on cryptocurrency.

“Why does Centre not come out with a clear-cut policy on regulating cryptocurrency,” a bench of Justices Surya Kant and N Kotishwar Singh asked.

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The remarks from the Hon’ble Supreme Court came when it was hearing a bail plea of an accused who was held for illegal Bitcoin trade in Gujarat. The accused, Shailesh Babulal Bhatt, had moved the top court for bail.

The SC termed Bitcoin trade as an illicit trade, more or less like “hawala” business.

On 5th May, the top court said trading in Bitcoin in India was like “dealing with a refined way of Hawala business” as it showed the Centre’s inability to come up with a clear regime on regulating virtual currency so far.

Is cryptocurrency legal in India?

India is currently working on a discussion paper on cryptocurrencies, and an interministerial group (IMG), comprising officials from the RBI, Sebi, and the finance ministry, is investigating global norms.

In the absence of any regulation, cryptocurrency is not yet lawful in India.

The discussion showcase will give the stakeholders an opportunity to give their views before India decides on its policy stands on cryptocurrencies.

In 2022, the government announced a flat 30 per cent tax on gains arising from cryptocurrencies. Taxing income from cryptocurrencies does not necessarily and explicitly legalise cryptocurrencies.

Currently, crypto assets are unregulated in India.

RBI Posts Crypto Currency Concerns

Soon after announcing a 50 basis points cut in the repo rate to 5.5% on June 6, Reserve Bank of India (RBI) Governor Sanjay Malhotra voiced fresh concerns over cryptocurrencies, warning that their proliferation could hamper financial stability and pose challenges to monetary policy.

The remarks comes amid a shift in tone from Indian policymakers, with the Centre now reconsidering its earlier hardline stance. A discussion paper on crypto assets is expected next month, drawing insights from the IMF-FSB synthesis note and regulatory approaches in other jurisdictions, according to an Economic Times report.

Earlier this year, Department of Economic Affairs Secretary Ajay Seth had confirmed that the RBI had contributed to a crypto discussion paper, but the release was delayed as several countries revised their crypto strategies, particularly around cross-border payments and stable coins.

This is not the first time RBI has flagged concerns. In October 2024, then-Governor Shakti Kanta Das warned that cryptocurrencies could de-stabilize the banking system, hinder crisis-time inflation control, and create a parallel currency system outside sovereign oversight.

Meanwhile, SEBI Chairperson Tuhin Kanta Pandey recently clarified that a regulatory stance on crypto must be decided by the central government. “Crypto is not a security under SEBI regulations. A policy call has to be taken by the government,” he said on May 22.