Union Finance Minister Nirmala Sitharaman said any legislation for regulation or for banning cryptocurrencies can be effective only after significant international collaboration on evaluation of the risks and benefits.
"Cryptocurrencies are by definition borderless and require international collaboration to prevent regulatory arbitrage," Sitharaman said in a written reply to Lok Sabha.
On whether RBI has registered its concern over the adverse effect of cryptocurrency on the Indian economy, she said RBI mentioned that cryptocurrencies are not a currency because every modern currency needs to be issued by the central bank or the government.
"Further, the value of fiat currencies is anchored by monetary policy and their status as legal tender, however, the value of cryptocurrencies rests solely on the speculations and expectations of high returns that are not well anchored, so it will have a destabilizing effect on the monetary and fiscal stability of a country," she added.
In view of the concerns expressed by the RBI on the destabilizing effect of cryptocurrencies on the monetary and fiscal stability of a country, the central bank has recommended framing legislation on this sector and is of the view that cryptocurrencies should be prohibited.
The Indian central bank RBI Governor Shaktikanta Das recently said that cryptocurrencies are a clear danger and anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.