India’s central bank — the Reserve Bank of India — is in the midst of a Supreme Court case where Indian entities have requested the bank to end its restrictions involving cryptocurrencies. In a recent response, the central bank claims it never banned cryptocurrencies, but only prohibited regulated financial entities from dealing with such assets.
Are Cryptocurrencies Banned in India?
In early 2018, the Reserve Bank of India (RBI) officially prohibited regulated financial entities, such as banks, from dealing with Bitcoin and other cryptocurrencies. Since that time, the general sentiment surrounding the situation was such that cryptocurrencies are illegal throughout the country.
However, the situation has recently been clarified. The Internet and Mobile Association of India (IAMAI) filed a petition requesting the RBI to reconsider its directive stemming from 2018.
The IAMAI is a consortium of several companies, including a number of cryptocurrency exchanges. The group was established to form a unified voice of Indian businesses — and to represent that voice in front of the Indian government.
The group told the Indian Supreme Court that the trading of cryptocurrencies was a legitimate business activity. This legitimate activity, says the IAMAI, was essentially banned when the RBI prevented banks from dealing with digital assets.
In a response to the petition, the RBI issued a 30-page affidavit clarifying its position. The RBI says,
“Firstly, the RBI has not prohibited VCs (virtual currencies) in the country. The RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs…The RBI has been able to ringfence the entities regulated by it from being involved in activities that pose reputational and financial risks along with other legal and operational risks.”
The affidavit went on to provide several examples of the risks involved, which seem to revolve around the purchasing of illegal weapons, drugs, terrorism funding, and money laundering. The affidavit reads,
“Any possible avenues which facilitate anonymous cross-border fund transfer have to be acted upon swiftly and stringently dealt with. It is an admitted fact that VCs have been used to purchase illegal and illicit goods ranging from guns and ammunition to drugs.”
The RBI added that neither Initial Coin Offerings (ICOs) nor cryptocurrency asset funds are allowed within in jurisdiction.
Will India Eventually Regulate Cryptocurrencies?
Regulatory authorities around the globe have been forced to either regulate digital assets by providing a clear regulatory framework — or ban them altogether. In India, the situation is still ongoing.
Following the RBIs prohibition of financial entities dealing with cryptocurrencies in 2018, banks were forced to cease working with crypto exchanges and other companies in the digital asset space. As a result, a number of companies went out of business.
This particular Supreme Court case, where the IAMAI is calling on the Indian government to end its existing banking restrictions, remains in progress. The government is reported to be working on a bill which would ban all cryptocurrencies except those issued by the state. The bill has yet to be introduced to parliament.
Throughout other areas around the globe, regulators have taken a different approach. In Germany, a recent law was passed allowing banks to store and sell Bitcoin, among other cryptocurrencies.
In the United States, SEC Chairman Jay Clayton has said nearly every ICO he has seen, is de facto a securities offering. As a result, the regulatory compliant alternative to the ICO emerged: the Security Token Offering (STO). In differing from the ICO, the STO leverages the benefits of blockchain technology to raise funds in a compliant manner.
In India, the dust continues to settle. The delay of India’s rumored legislation to ban all cryptocurrency has given the local community a glimmer of hope that the government could be contemplating a regulatory framework instead of an outright ban.
What do you think about the RBI saying it did not ban cryptocurrencies, but only prohibited regulated financial entities from dealing with such assets? We want to know what you think in the comments section below.
Image courtesy of Hindustan Times.