Briefing the Parliamentary Standing Committee on Finance chaired by former minister of state for finance Jayant Sinha, top officials of the RBI, including its governor Shaktikanta Das, clearly expressed their apprehensions about cryptocurrencies and said these pose challenges to the stability of the financial system, the report added.
A member of the panel quoted RBI officials as saying: "It will seriously undermine the RBI's capacity to determine monetary policy and regulate the monetary system of the country."
Pointing out that cryptos have the potential to be a medium of exchange and replace the rupee in financial transactions both domestic and cross border, central bank officials said these currencies "can replace a part of monetary system it will also undermine the RBI’s capacity to regulate the flow of money in the system".
Cautioning that besides being used for terror financing, money laundering and drug trafficking, cryptos pose a bigger threat to the stability of the financial system of the country, the central bank officials said.
“Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, it may eventually lead to dollarization of a part of our economy which will be against the country’s sovereign interest," the officials told the members.
Discussing the impacts of cryptocurrency, the RBI officials said it will also have a negative impact on the banking system as these being attractive assets people may invest their hard-earned savings in these currencies which may result in banks having lesser resources to lend.
Crypto industry wants govt to lower TDS on transactions
Meanwhile, the crypto industry has urged the government to reduce the TDS on payments towards gains arising from trading in cryptocurrencies to 0.01 or 0.05 per cent, from the proposed 1 per cent, saying it will hurt retail traders.
CoinDCX CEO and Co-Founder Sumit Gupta said 30 per cent tax on income from cryptocurrencies is on the higher side and should be reduced.
"At the industry (level), we are engaging with the government and have submitted a presentation on how 30 per cent tax and more than that, 1 per cent TDS is detrimental to the growth of the industry. It will lock up capital for traders and suck liquidity from market. If liquidity is not there, retail investors will suffer," Gupta told reporters.
In the Union Budget presented earlier 2022, Finance Minister Nirmala Sitharaman introduced a tax on trading in cryptos and related assets such as non-fungible tokens (NFTs) at a flat 30% and 1 % tax will be deducted at source (TDS) when any such transaction takes place.
There are an estimated 15 million to 20 million crypto investors in India, with total crypto holdings of around $5.34 billion.
However, no official data is available on the size of the Indian crypto market.
The Sinha-led panel which has former GST council head Sushil Modi, former Union Ministers Manish Tewari and Saugata Roy as its members have been holding comprehensive deliberations with financial regulators.
As statutory bodies, both RBI and SEBI report to Parliament and the panel has the parliamentary responsibility to call upon the officials of these regulators over the financial and economic issues of the country.
Sinha, a pass out of IIT Delhi and MBA from Harvard Business School, was the Minister of State for Finance during the previous Modi government.