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RBI Governor Shaktikanta Das does not believe the hype around cryptocurrency in India

With the RBI hesitating to back cryptocurrency, will the job of regulating the crypto market in India find any takers?

The Reserve Bank of India (RBI) Governor Shaktikanta Das believes that the number of Indian investors exposed to cryptocurrency may be “exaggerated”, as per an interaction at the Business Standard BFSI Insight Summit. He said that a bulk of investors (nearly 70 percent or more) have a portfolio of only Rs 3,000. 

Das was referring to claims of 10 crore Indians with investments worth Rs 6 lakh crore locked in the crypto market. “I am not sure of the numbers being claimed and it seems like there is an effort to enrol as many investors as possible,” Das informed the interviewer. 

The RBI Governor also said that the central bank has “serious concerns” about cryptocurrencies and the bank has conveyed these concerns to the Union government. These concerns are regarding issues of macro economics and financial stability.

“We have given our detailed suggestions on how to deal with cryptocurrencies, and the matter is under active consideration,” he concluded.

Das’s comments indicate that the RBI is not going to welcome cryptocurrencies with open arms as it is also looking at a “phased implementation strategy” for the introduction of a central bank-backed digital currency (CBDC) called Digital Rupee.

Who will regulate the crypto market in India?

At the event, Das refused to speculate on the outcome of the crypto bill when asked whether RBI will be up for accepting the job of a regulator should the government look to it.

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It is important to note that the Indian government is likely to designate crypto as an asset commodity instead of currency. The burden of regulation in this case will likely not fall on RBI but the Securities and Exchange Board of India (SEBI).

What do the stakeholders prefer?

“As of today, there is no single existing regulator in a position to regulate the entire crypto sector in India. It’s like trying to regulate the Internet with one regulator and we are still learning. We can start breaking down crypto based on its classification as currency, asset, utility, security, and let regulators handle the respective crypto,” Nischal Shetty, CEO, WazirX, told MediaNama. 

He said that it would be ideal to have a dedicated crypto markets regulator eventually.

While SEBI might be a better-suited regulator for crypto as it is closer to being a commodity than a currency. It can come up with rules and regulations similar to that for the stock market. However, a hybrid regulatory body overseen by RBI and SEBI together can also be helpful. — Nischal Shetty

Varun Sethi, a tech lawyer specialising in blockchain, said that RBI is a key regulator for cryptos “since it involves cross border trade which are covered by FEMA laws which is governed by RBI guidelines”. He added that the RBI has a crucial role to play because cross border trades require a massive upgrade to existing and complex FEMA laws of the country with capital controls and thresholds.

Sethi was not in favour of roping in the International Financial Services Centres Authority (IFSCA).

The drawback of IFSCA’s involvement at policy creation level is that it may result in a regulatory framework which isn’t ‘indianised’ to capture the ethos of Indian users. — Varun Sethi

Stakeholder consultation planned for next week

The recent developments put the upcoming closed-door meeting of the Parliamentary Standing Committee on Finance in the spotlight. The committee is set to meet with the top stakeholders of the cryptocurrency industry, according to a report in the Economic Times

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The committee, led by Lok Sabha MP Jayant Sinha, will interact with India’s top crypto exchanges, members of the Blockchain and Crypto Assets Council (BACC), and analysts during the discussion.

It is a significant occasion as this is the first time the committee has invited stakeholders to discuss the industry “officially”, ET added. The newspaper said that a set of questions has been sent to top crypto exchanges. These are some of the issues raised in the questions: 

  • Potential of the crypto industry to contribute to India’s digital ambition
  • Its impact on the stability of the Indian rupee
  • Trading volumes registered by crypto exchanges

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