RBI Seeks Ban on Cryptocurrency

GS Paper – 3 IT & Computers, Mobilization of Resources.

Why in the news?

The Reserve Bank of India (RBI) has recommended a cryptocurrency ban, citing cryptocurrencies’ “destabilising effects” on the country’s monetary and fiscal health.

China has declared all cryptocurrency transactions illegal, effectively outlawing them entirely, whereas El Salvador has legalised Bitcoin.

What is the Current State of Cryptocurrency?

In India, there is currently no legislation covering cryptocurrencies. Owning cryptocurrencies is still legal in India. The Supreme Court overturned a Reserve Bank of India-imposed restriction on crypto currency trading in India in 2020. (RBI).

Since 2013, the central bank has been warning individuals against using virtual currencies.

The RBI barred regulated organisations from dealing in virtual currencies or offering services to assist any person or entity in dealing with or settling them in April 2018. The Supreme Court overturned the decree in March 2020.

Following that, in May 2021, the central bank advised its regulated entities to continue conducting customer due diligence processes for transactions in such currencies, in accordance with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering, Combating Financing of Terrorism, obligations under the Prevention of Money Laundering Act, 2002, and so on, as well as Foreign Exchange Management Act (FEMA) Norms for overseas remittances.

In the coming fiscal year, the Union Budget 2022-2023 proposed the introduction of a digital currency.

What are the RBI’s worries?

  • Not Fiat Currency:

Cryptocurrencies are not currencies because all modern currencies must be issued by a central bank or the government.

  • Destabilizing and speculative:

The value of fiat currencies is anchored by monetary policy and their status as legal tender, whereas the value of cryptocurrencies is solely based on speculation and unanchored expectations of high returns, which will have a destabilising effect on a country’s monetary and fiscal stability.

What exactly is cryptocurrency?


Cryptocurrency, sometimes known as crypto-currency or crypto, is any type of digital or virtual currency that uses encryption to safeguard transactions.

Cryptocurrencies lack a centralised issuing or governing authority, instead relying on a decentralised system to record transactions and issue new units.

It is supported by the blockchain, a decentralised peer-to-peer network.


Fast and inexpensive transactions: Because transactions do not have to go through a succession of intermediaries before reaching their destinations, cryptocurrencies are far less expensive to utilise for international transactions.

Investment Opportunity: Cryptocurrency has a limited supply, similar to gold. Furthermore, the price of cryptocurrencies has risen quicker in recent years than the price of traditional financial instruments.

As a result, cryptocurrencies may become a popular investment option.

Anti-Inflationary Currency: Because of the high demand for cryptocurrency, its prices have largely remained on an upward trend. In this environment, people tend to hoard cryptocurrency rather than use it.

The currency will experience deflation as a result of this.

What are the Concerns About Cryptocurrency?

Advertisement Flood: The crypto market is viewed as a means to make rapid money. As a result, there is a barrage of advertising, both online and offline, attempting to entice people to speculate in this market.

There are fears, however, that these are attempts to mislead the youth through “over-promising” and “non-transparent advertising.”

Unregulated crypto marketplaces can serve as a conduit for money laundering and terrorist financing.

Cryptocurrencies are Extremely Volatile: Bitcoin soared from USD 40,000 to an all-time high of USD 65,000 in a matter of days (between January to April 2021).

Then, in May 2021, it plummeted, and it remained below USD 30,000 throughout June.

Risk to Macroeconomic and Financial Stability: The magnitude of Indian retail investors’ investment exposure in this unregulated asset class is a risk to Macroeconomic and Financial Stability.

According to a Group of Crypto Exchanges, approximately Rs 6,00,000 crore has been invested in crypto assets by Indians.

Stock Market Issues: The Securities and Exchange Board of India (SEBI) has stated that it has no authority over the “clearing and settlement” of crypto currencies and cannot provide counterparty guarantees as it does for stocks.

Furthermore, it is unclear whether bitcoin is a currency, commodity, or security.

The Way Forward

The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which would establish the regulatory framework for the creation of a “official digital currency,” has yet to be introduced in India.

As a result, there is an urgent need to adopt the bill and create a legal framework to deal with cryptocurrencies.

Regulation is required to avoid significant problems, ensuring that cryptocurrencies are not abused, and safeguard naive investors from excessive market volatility and potential scams.

A law to regulate or prohibit cryptocurrencies can only take effect if there is an international agreement in place.

Cryptocurrencies are transnational by definition, necessitating international collaboration to prevent regulatory arbitrage.

As a result, any legislation for regulation or prohibition can be effective only after extensive international collaboration on risk-benefit analysis and the establishment of a common taxonomy and standards.


No comments yet. Why don’t you start the discussion?

Leave a Reply

Your email address will not be published. Required fields are marked *