RBI Reiterates Concern As India Looks Forward to Govt’s Approach on Cryptocurrencies

On the heels of a blanket ban on cryptocurrency in China, some leading Indian banks had recently sent out cautionary emails to their customers warning them against dealing with cryptocurrencies.  

Advisory issued on the basis of quashed circular 

The advisory issued to certain customers dealing in cryptocurrency referred to the impugned 2018 circular which directs banks to closely monitor the transactions carried out in the account of such customers on an ongoing basis.  This led to confusion among the crypto trading community in India as the said circular was put aside by the Supreme Court in March last year. 

 Taking charge of the situation, RBI directed banks to stop making references to the invalid circular. 

References made by Banks or regulated entities to RBI’s earlier circular prohibiting dealing in virtual currencies are not in order since the same has been set aside by the Hon’ble Supreme Court by a judgment in the case of Internet and Mobile Association of India v. Reserve Bank of India; the clarificatory circular issued by RBI said 

Although legal, RBI does not endorse cryptocurrencies 

Although cryptocurrency is legal in India, RBI has time and again expressed concerns over investing in cryptocurrency. The same was reiterated by the RBI governor during a press conference on RBI’s monetary policy shortly after the clarificatory circular came out. 

The reasons for the persistent concern extend far beyond a lack of understanding of crypto technology.

For starters, crypto trading is volatile. Besides, the regulatory authorities have never been in favour of a decentralized system of currency exchange that eliminates the banking channel altogether. Instances of cryptocurrency used for money laundering and terror financing have not helped the cause either. 

The unpalatable macro-economic conditions, lack of information about its functioning and inadequate legislation are some more factors which contribute to RBI's cautionary approach. However, considering the tremendous potential the crypto market carries, the government must concentrate on strengthening existing laws to keep novel crimes in check and safeguard investors, , adds Sonam Chandwani, Managing Partner, KS Legal & Associates

Government looking to tap into possibilities, digital rupee in works 

The cryptocurrency market is a trillion-dollar industry and is seen as the most game-changing disruption for the global economy in the last decade.  

Cryptocurrency is based on blockchain technology and if forecasts of the world economic forum are taken into consideration, 10% of the global GDP will be stored on blockchain by 2025. In terms of annual business value, blockchain is expected to generate business value to the tune of US $3 trillion by 2030. 

Realizing the immense possibilities of capital appreciation and wealth creation the disruptive crypto technology brings, the government is working towards bringing the digital rupee to life sans the risks associated with private cryptocurrencies. On the regulatory front, the government has been fine-tuning its existing laws to bring cryptocurrencies under some form of regulation while simultaneously working on a full-fledged cryptocurrency law which has been in the making for quite some time now. 

As the government evaluates the banes and boon of technology to come up with an effective legal framework, Nakul Batra, Associate Partner, DSK Legal stresses on the fact India needs to catch up with technology fast. 

While, the Government has plans to launch India’s private blockchain-based digital rupee and a Bill to ban all other private cryptocurrency pending with the parliament, the recent and frequent changes brought by the Government such as crypto disclosure requirements for corporates under the Companies Act, 2013 and RBI notification of May 31, 2021, asking Banks to exercise customer due diligence for transactions in virtual currencies, suggests that India is preparing not to miss this bus, he says.

Will India have a successful alternative to bitcoins besides a holistic regulatory regime on cryptocurrencies, it's a question the investors soon want to get concrete answers to.