Background –
Is the tussle between the Reserve Bank of India and cryptocurrency finally over?
For the past few years, cryptocurrency has been in the headlines for some reason or another. While the economies around the world were optimistic about the future of blockchain technology and cryptocurrencies, the Reserve Bank of India had a conservative stance on the same.
In the year 2018 RBI passed a Circular stating that the entities regulated by the Reserve Bank of India shall not deal with virtual currencies or shall not even provide services relating to Virtual currencies.
Recent Developments –
2018 circular strictly forbade any bank from participating or facilitating any cryptocurrency-related transactions. This restriction was also welcomed by other regulatory authorities like the Securities and Exchange Board of India (SEBI).
However, following the decision of the Honourable Supreme Court on March 4, 2020, nullifying the circular, RBI has decided to make amends. RBI on 31st May 2021, cleared the clouds on cryptocurrency transactions.
The latest update from RBI has struck down the 2018 strict restrictions on cryptocurrency transitions while instructing banks to tighten and continue their own due diligence process to prevent any regulatory mishaps like money laundering. The central bank issued a simple clarification informing banks that they can no longer warn customers using the old ban order.
RBI added an extra layer of caution and hygiene check on banks to ensure that the warnings issued by SBI and HDFC banks on mischievous investors using cryptocurrency to fund terrorism and black marketing of prohibited goods are given attention.
Even though cryptocurrency trading was never legally prohibited but this reiteration by the central bank brings a lot of cheer among the investors. This clarification is likely to bring more investors to the world of virtual currency.
Understanding the Rationales-
The recent update by RBI created a lot of confusion in investors’ head as RBI choose to remain silent on crucial points. Does this lifting of ban mean RBI will start endorsing cryptocurrency transitions in India? If yes, then why did the central bank take a conservative stance in the past?
The anecdote of cryptocurrency started back in the year 2008 when a paper was produced by a title of Satoshi Nakamoto by a solitary or amassed group of feigned developers: “BITCOIN”: A Peer to Peer Electronic Cash System”. Mounting on the back of this popularity stream, numerous cryptocurrency exchanges commenced operating in India between 2012 to 2017.
With the rise in virtual currencies and uncertainties around the same, RBI expressed its uneasiness with bitcoin particularly. RBI had genuine concerns back then regarding cryptocurrencies, the most important ones being investors protection, the obscurity of transactions, and also the lack of ingrained value of cryptocurrencies.
It seems that the concerns are still the same by the statements given by the CEO and other staff of RBI, and also the regulator has not taken up any spot on the soundness and legality of cryptocurrency transactions in India. Only a potential legal hazard has been avoided-alluring a contempt of the apex court by sustaining tranquility when a clench of Banks has used its old, infirm circular to keep the crypto foyer away.
Last year in the month of March the Supreme court revoked the crypto circular on a petition by the Internet and Mobile Association of India V. Reserve Bank of India, RBI was the respondent and not the other banks, hence it is a possibility that any contempt proceeding will drag RBI and not other Banks if the crypto foyer moves towards judicial help against banks using the 2018 RBI circular.
This brings out the clarity behind this step taken by RBI, that it doesn’t want to bid the humiliation of contempt of court and also invite the pique of the judiciary system in this issue. The clarification given by the regulators is only to protect its position.
The idea of cryptocurrency as a source of interchange clearly makes RBI uncomfortable, the Government’s perception toward this is also not clear. Although it has been proposed by the Government to present a bill to manage cryptocurrencies, the bill will be known as “The Cryptocurrency and Regulation of Official digital currency Bill,2021”. This bill will contain provisions to make any transactions in cryptocurrency illicit. But as of now, no clarity has been given when and how this bill will be introduced in parliament.
The Way Ahead –
The question which arises now is what will happen next? The clarification given by RBI has created more unpredictability than before.
According to crypto businesses and enthusiasts, this is not the end but the beginning of the future of cryptocurrency in India. It will be a mockery of the system if RBI and the government move back to the initial 2018 stance of banning all virtual currencies.
Referring to this more, RBI has given a very clear message to Banks. The hidden message of the announcement was that both banks and crypto trading platforms need to strictly ensure that the transactions are not used to surrogate fraudulent activities and tax evasion.
The onus is on banks and not RBI, if they wish to keep the doors open for crypto business, they will be responsible for whatever the outcome will be whether it is positive or negative.
Disclaimer: The write-up is solely for educational purposes only. This should not be construed as qualified investment advice to invest in crypto-currencies. Please consult your financial adviser before making any decisions.
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