India’s stance on cryptocurrency regulation appears to be evolving, with the Securities and Exchange Board of India (SEBI) advocating for multi-regulator oversight in contrast to the Reserve Bank of India’s (RBI) concerns about potential macroeconomic risks associated with private digital currencies. Documents obtained by Reuters reveal SEBI’s recommendation that various regulatory bodies supervise cryptocurrency trading, marking a significant departure from the country’s previous stringent approach towards virtual assets.
SEBI’s position, previously undisclosed, signals a willingness among certain Indian authorities to explore the utilization of private virtual assets, diverging from the RBI’s assertion that such currencies pose significant macroeconomic threats. Since 2018, India has maintained a strict stance on cryptocurrencies, initially evidenced by the RBI’s prohibition on financial institutions from engaging with crypto users or exchanges. However, this move was overturned by the Supreme Court. In 2021, the government drafted a bill aiming to outlaw private cryptocurrencies, although it has yet to be formally introduced. During its tenure as G20 president, India called for global coordination in regulating digital assets.
Despite SEBI’s openness to crypto oversight, the RBI remains steadfast in its support for banning stablecoins, which are designed to maintain a stable value against fiat currencies, citing ongoing discussions within the panel. SEBI’s recommendations to the government panel propose a nuanced approach, suggesting that various regulators oversee specific aspects of cryptocurrency activities within their respective domains. SEBI envisions monitoring cryptocurrency securities and Initial Coin Offerings (ICOs), akin to the Securities and Exchange Commission’s role in the United States.
Furthermore, SEBI suggests that cryptocurrencies backed by fiat currencies fall under the purview of the RBI, while the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) regulate insurance and pension-related virtual assets. The resolution of investor grievances related to cryptocurrency trading under India’s Consumer Protection Act is also proposed by SEBI.
Despite repeated requests for comments, SEBI, the RBI, and relevant government bodies remained silent. The RBI’s submissions highlight concerns regarding cryptocurrency’s potential for tax evasion and decentralized peer-to-peer transactions, posing fiscal policy risks. Additionally, it points out the potential loss of seigniorage income, derived from money creation, as a consequence of widespread cryptocurrency adoption.
Following the Supreme Court’s 2018 ruling against the RBI’s restrictions, the central bank reinforced strict compliance with anti-money laundering and foreign exchange regulations, effectively excluding cryptocurrencies from India’s formal financial system. Despite regulatory challenges, cryptocurrency trading in India has thrived, prompting the government to introduce a tax on crypto transactions in 2022. Subsequent measures required all exchanges to register locally to facilitate crypto transactions within the country. A December report by PwC indicates that 31 countries have implemented regulations allowing for cryptocurrency trading.
