In PM Modi's meet on cryptocurrency, concerns raised over money laundering and terror financing risks

Amid concerns over misleading claims of huge returns on cryptocurrency investment, Prime Minister Narendra Modi on Saturday chaired a meeting on the way forward on the issue, with government sources asserting that such unregulated markets cannot be allowed to become avenues for "money laundering and terror financing".

The meeting comes only a few days after RBI governor Shaktikanta Das said:

“Cryptocurrencies are a serious concern to RBI from a macroeconomic and financial stability standpoint. The government is actively looking at the issue and will decide on it. But as the central banker, we have serious concerns about it and we have flagged it many times."

The meet

In Saturday's meet, it was strongly felt that attempts to mislead the youth through over-promising and non-transparent advertising should be stopped, the sources said, signalling that strong regulatory steps are in the offing.

Earlier, the government had held off on plans to introduce The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, in the Budget session as it continued discussions with stakeholders. The draft law proposed to prohibit all private cryptocurrencies and laid down the regulatory framework for the launch of an “official digital currency”.

"The government is cognizant of the fact that this is an evolving technology, it will keep a close watch and take proactive steps. There was consensus also that the steps taken in this field by the government will be progressive and forward looking," a source said.

The government will continue to proactively engage with experts and other stakeholders, sources added, noting that since the issue cuts across geographical borders, it was felt that it will also require global partnerships and collective strategies.

The meeting on the way forward for cryptocurrency and related issues was a very comprehensive one.

"It was also an outcome of a consultative process as RBI, finance ministry, the home ministry had done an elaborate exercise on it as well as consulted experts from across the country and the world. Global examples and best practices were also looked at," the source said.

The RBI has repeatedly reiterated its strong views against cryptocurrencies saying they pose serious threats to the macroeconomic and financial stability of the country and also doubted the number of investors trading on them as well their claimed market value.

RBI Governor Shaktikanta Das on Wednesday had reiterated his views against allowing cryptocurrencies saying they are a serious threat to any financial system since they are unregulated by central banks.

His comments come ahead of the RBI's internal panel report on the contentious topic which is expected next month.
The Supreme Court in early March 2020 had nullified the RBI circular banning cryptocurrencies. Following this in 5 February 2021, the central bank had instituted an internal panel to suggest a model of central bank's digital currency.

The RBI had announced its intent to come out with an official digital currency, in the face of proliferation of cryptocurrencies like Bitcoin about which the central bank has had many concerns.

Private digital currencies/virtual currencies/crypto currencies have gained popularity in the past decade or so. Here, regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks.

It can be noted that on March 4, 2021, the Supreme Court had set aside an RBI circular of April 6, 2018, prohibiting banks and entities regulated by it from providing services in relation to virtual currencies.

Crypto in other countries

In September, China declared all cryptocurrency transactions illegal, effectively imposing a complete ban. The same month, El Salvador permitted Bitcoin as legal tender. In most parts of the world, this market remains unregulated.

The US Securities and Exchange Commission Friday is reported to have rejected rule changes that would have allowed the listing and trading of the VanEck Bitcoin exchange-traded fund.

What necessitated the meet

According to an Indian Express report, “Crores of Indians have invested over Rs 600,000 crore in crypto assets,” a  claim made by an advertisement by a group of 13 members, including Internet and Mobile Association of India, Blockchain & Crypto Assets Council’s (BACC), crypto exchanges and others that are part of crypto ecosystem in India.

What's next

The Lok Sabha, for the first time, will hold an official meeting with the top stakeholders in the industry, including the crypto exchanges, on 15 November. The topic of the meeting will be “Hearing of the views of associations, industry experts on the subject of ‘CryptoFinance’: Opportunities and challenges,” and will be hosted by the Parliamentary Standing Committee on Finance.

Meeting attendees will include representatives from the India Internet and Mobile Association (IAMAI) Blockchain and Crypto Assets Council (BACC), which includes some of the top crypto exchanges of India. These include WazirX, CoinDCX, CoinSwitch Kuber and others.

According to an India Today report, industry sources mentioned that the meeting will see stakeholders addressing a committee led by Lok Sabha member and junior minister of finance, Jayant Sinha. The committee has already sent a list of questions to BACC for this discussion. The meeting is expected to be the first official step towards an eventual regulation around cryptocurrencies in India.

With input from agencies