In a significant development, India's market watchdog, the Securities and Exchange Board of India (SEBI), has recommended that multiple regulators oversee cryptocurrency trading, according to documents seen by Reuters.
This is the strongest indication that some authorities in the country are open to the use of private virtual assets.
SEBI's stance contrasts with that of the Reserve Bank of India (RBI), which argues that private digital currencies pose a macroeconomic risk. Both sets of documents were presented to a government panel responsible for making policy for the finance ministry to consider.
India has taken a tough stance on cryptocurrencies since 2018, when its central bank banned lenders and other financial intermediaries from dealing with crypto users or exchanges. However, this move was later overturned by the Supreme Court.
In 2021, the government prepared a bill to ban private cryptocurrencies, but it has not yet been implemented. As G20 president last year, India called for a global framework to regulate such assets.
RBI continues to support banning stablecoins. A source with direct knowledge of the panel's discussions said the panel plans to finalize its report as early as June.
SEBI, however, has opposed a single unified regulator for digital assets, recommending that different regulators oversee activities linked to cryptocurrencies falling within their purview. He proposed that his agency oversee cryptocurrencies in the form of securities and new offerings called Initial Coin Offerings (ICOs) and issue licenses for stock market-related products.
This approach mirrors that in the United States, where securities and crypto exchanges fall under the jurisdiction of the Securities and Exchange Commission (SEC). SEBI has also suggested that crypto assets backed by fiat currencies can be regulated by the RBI and the Insurance Regulatory and Development Authority of India (IRDAI) and Pension Fund Regulatory and Development Authority (PFRDA) should regulate insurance and pension-related virtual assets.
SEBI also recommended that the complaints of investors trading in cryptocurrencies be resolved under India's Consumer Protection Act.
In its presentations, the RBI had warned of fiscal policy risks, including potential tax evasion and reliance on voluntary compliance in decentralized peer-to-peer (P2P) activities in cryptocurrencies. He also highlighted the potential loss of “seigniorage” income, the profit a central bank makes from money production.
Although the RBI's 2018 orders were challenged and overturned by the Supreme Court, the central bank asked financial institutions to strictly comply with stringent anti-money laundering and foreign exchange rules and completely excluded cryptocurrencies from India's formal financial system.
However, the trade gradually increased and in 2022 the government introduced a tax on crypto transactions in India to discourage such transactions.
*This is not investment advice.