Editorial: Regulate virtual currency market
With the Reserve Bank of India (RBI) taking a rather tough stand on cryptocurrencies, a question mark hangs over the fate of the unregulated virtual currency market. When RBI Governor Shaktikanta Das dubbed the cryptocurrencies as a threat to the financial system, at least till they are regulated, he was echoing the concerns raised by […]
With the Reserve Bank of India (RBI) taking a rather tough stand on cryptocurrencies, a question mark hangs over the fate of the unregulated virtual currency market. When RBI Governor Shaktikanta Das dubbed the cryptocurrencies as a threat to the financial system, at least till they are regulated, he was echoing the concerns raised by many experts over the hype surrounding the virtual currencies. The central bank had always looked at it with suspicion, considering it as a threat to the country’s macroeconomic and financial stability. There is also a sense that the number of Indians participating in the crypto market might be highly exaggerated. However, imposing a total ban on cryptocurrencies is neither feasible nor desirable because large investments have already been made in such instruments. However, there is a strong case for bringing the entire ecosystem, including Non-fungible Tokens (NFTs) and cryptocurrencies, under the tax net. The Centre needs to work towards arriving at a consensus on the mechanism of regulation of these virtual assets. Earlier this year, when the government had a stronger stance on cryptocurrencies, the RBI had expressed its intent to introduce an official digital currency for India. Back then, the RBI chief said that a committee was working to decide on the model of the central bank digital currency. It is not clear at this point whether the central bank wants to go ahead with a digital rupee if the government decides not to ban the existing cryptocurrencies like Bitcoin.
In its current avatar, crypto carries security and market risks in the absence of any mechanism for inheritance, government regulation and financial stability. In transactions involving cryptocurrency, the apprehension that tainted funds are apparently mixed with the other funds, making it much more difficult to get to the source and then shut the account down. Even in the world of hard cash or electronic money, the money trail gets lost in a complex maze of holdings and shell entities. In the crypto era, this may become even more complicated unless there is an acceptable regulatory certainty in this domain. There should be a global consultative approach to cryptos with country-specific regulations. A similar exercise is already under way, first through FATF (Financial Action Task Force), and now through the proposal for a global taxation for Multinational Corporations. The crypto sector could be the next. In every form of investing — from fixed deposits to stocks, mutual funds to real estate — there is a tax deducted at source. However, when it comes to crypto exchanges in India, there is no tax being deducted at source when an investor sells out. Cryptocurrencies are proving volatile short-term stores of value, exhibiting wild price fluctuations. Like mutual funds, crypto exchanges also need to declare the total amount of money that has been invested through them into different cryptos.
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