India's market watchdog has recommended that several regulators oversee trade in cryptocurrencies, documents show, the strongest signal to date that at least some authorities in the country are open to allowing the use of private virtual assets.
The position of the Securities and Exchange Board of India (SEBI) contrasts with that of the Reserve Bank of India (RBI), which maintains that private digital currencies represent a macroeconomic risk, separate documents show.
Both sets of documents, which have been seen by Reuters, have been submitted to a government panel which is tasked with formulating policy for the finance ministry to consider. SEBI's stance has not previously been reported.
India has taken a tough stance against cryptocurrencies since 2018, when the central bank prohibited lenders and other financial intermediaries from dealing with crypto users or exchanges though the move was later struck down by the Supreme Court.
In 2021, the government prepared a bill that would have banned private cryptocurrencies though it has not been introduced. Last year, when it was president of the G20, India called for a global framework to regulate such assets.
The RBI remains in favour of a ban on stablecoins, according to a person with direct knowledge of the panel's discussions. The person, who was not authorised to speak to media and declined to be identified, added that the panel plans to firm up its report as early as June.
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with fiat currencies so that they are less vulnerable to wild volatility.
In its submissions to the government panel, however, SEBI recommended different regulators should oversee activities linked to cryptocurrencies that fall under their domain and that a single unified regulator for digital assets should be avoided.
SEBI said it could monitor cryptocurrencies that take the form of securities as well as new offerings called Initial Coin Offerings (ICO). It could also issue licenses for equity market-related products, said the person aware of the panel's discussions.
This would be similar to the U.S., where tokens that are in the nature of securities and crypto exchanges fall under the purview of the Securities and Exchange Commission.
Crypto assets that are backed by fiat currencies could be regulated by the Reserve Bank of India, it said.
The Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA) should regulate insurance and pension-related virtual assets, the documents showed.
It also recommended that grievances of investors trading in cryptocurrencies should be resolved under India's Consumer Protection Act.
SEBI and the RBI did not respond to requests for comment. The finance ministry, IRDAI and PFRDA also did not respond to requests for comment.
FISCAL POLICY RISKS
In its submissions, the RBI said cryptocurrencies could lead to tax evasion and that decentralised peer to peer (P2P) activities in cryptocurrencies would rely on voluntary compliance - both representing risks to fiscal stability.
It also said cryptocurrencies may lead to loss of "seigniorage" income, which is the profit earned by a central bank from money creation.
After the RBI's 2018 orders were challenged by the industry and struck down by the Supreme Court, the central bank asked financial institutions to strictly comply with tough money laundering and foreign exchange rules, effectively keeping cryptocurrencies out of India's formal financial system.
Even so, trade flourished and in 2022 the government introduced a tax on crypto transactions in India to discourage such trading. It followed that up by asking all exchanges to register locally before facilitating crypto transactions from within the country.
According to a PwC report in December, 31 countries have regulations in place that allow for trade in cryptocurrencies.
