In the wake of India’s supreme court effectively legalizing cryptocurrencies this March, the Reserve Bank of India (RBI) was quite displeased at the ruling. Taking the cue from RBI and despite the positive ruling, not all banks were willing to service cryptocurrency companies and traders. This all changes with forced RBI clarification.
Cryptocurrencies Are Finally Legal in India
Indian cryptocurrency entrepreneurs and enthusiasts finally won against the established banking power, the Reserve Bank of India (RBI). After a protracted legal battle, the Supreme Court of India lifted the ban on cryptocurrencies on March 4, 2020, almost two years after RBI issued a circular instructing banks to withhold services to any cryptocurrency-related business.
Nonetheless, despite the ruling that quashed the initial crypto-banning circular, many banks still refused to open bank accounts for cryptocurrency exchanges, traders, and other FinTech companies that may include blockchain-powered services. These banks argued they needed a new RBI circular that explicitly states there are no restrictions on doing business with cryptocurrencies.
Thanks to B.V. Harish, the co-founder of Unocoin, India’s prominent crypto exchange, something close to a new RBI circular is at hand. Harish filed an RTI (Right to Information) query on April 25, asking whether there is any prohibition for banks to open accounts for crypto businesses. Of course, due to the Supreme Court’s ruling, the RBI had no choice but to explicitly state there is no such prohibition on May 22.
Lingering Resistance Doesn’t Slow the Rise in Crypto Trade
Nonetheless, even with the Supreme Court’s ruling and the RBI’s clear statement, some banks may still offer some resistance, rationalizing that they need a new RBI circular instead of a statement. Unfortunately, RBI is not legally obligated to inform commercial banks on the Supreme Court’s decision that quashed the RBI’s original crypto-banning circular.
However, the lift on the cryptocurrency ban itself triggered a significant rise in crypto trading volumes. In fact, some exchanges have experienced traffic 10x higher than normal, despite the nationwide pandemic lockdown.
Still, despite the temporary crypto and FinTech boom in India, the Indian state of cryptocurrency remains in the grey zone until specific regulation encases it within a clear set of rules.
The coronavirus lockdown has delayed such a legal framework from materializing, but most likely the RBI will continue to play a key role in the flow of cryptocurrencies. The current outlook is that cryptocurrencies may not be used as legal tender and that all crypto exchanges will be regulated by the Securities and Exchange Board of India. No doubt, the government is waiting for the Supreme Court’s decision on another ruling, relating to petitions on making cryptocurrencies legal or illegal.
Do you think India will ultimately go the way of China or Japan when it comes to regulating its cryptocurrency sector? We want to know what you think in the comments section below.