India: Why RBI Is Wary of Crypto

On April 6, 2018, the Reserve Bank of India (RBI) published a circular prohibiting financial institutions from participating in any operations related to cryptocurrencies. Maintaining accounts, registering, trading, clearing, setting, giving loans for virtual tokens, accepting them as collateral and other services came under the ban. Before the appearance of this circular, the Indians could legitimately exchange VCs for rupees. But now everything has changed.

This decision of RBI caused a negative reaction from crypto traders who filed petitions to the Supreme Court of India. "Banking is an essential service. How can one deny access to an essential service when I’m not doing anything illegal? You have not declared VCs illegal in the country,” one of the petitioners said.

The Supreme Court kept on repeatedly postponing the hearing, leaving the RBI's ban unchanged. On September 11 the last hearing was also postponed. Furthermore, RBI filed an affidavit stating that the virtual currency is “neither currency nor money; they can't even be considered as a valid payment system”. In addition, the affidavit says that the restrictions imposed on the crypto market do not contradict the Constitution of India, and therefore the Supreme Court should refuse to hear petitions.

Despite the fact that the conditions created by RBI have already caused significant damage to the Indian crypto market (for example, the largest cryptocurrency exchange Zebpay was closed on September 28), in fact, operations there have not stopped, but it has become much more difficult to conduct them. "While the RBI’s statement does make investments in Bitcoins or any other cryptocurrency more difficult, I don’t think such investment is still illegal”, - said tax Director of the consulting company Riaz THINGNA.

RBI explains its position on cryptocurrencies by the need to protect investors and banks from fraud. However, the Indian entrepreneur and Blockchain Evangelist Bibin BABU is sure that in reality, RBI imposes restrictions on the crypto market in order to gain time: “The reason why RBI is discouraging cryptos is to protect investors and banks from fraud. That’s what they claim. However, I believe that this move is done to get more time to come out with a strong strategy on how to deal with cryptocurrencies in a regulated way”.

In addition, Bibin BABU is convinced that due to the fact that RBI chokes the crypto market, many customers are more likely to run into scams. Just as in the days of Prohibition in the United States bootleggers actively developed illegal business, in India, people will seek roundabout ways to crypto trading. It is easy to understand that this will create additional risks. “This (RBI restrictions. - Ed.) is making the investors or people putting money in cryptos more vulnerable to fraud”, - says BABU.

It is interesting that according to the Reserve Bank of India, cryptocurrency has no real assets, but Bibin BABU believes that in fact, it is the half-truth. The entrepreneur also thinks that the reluctance of the Indian government to create a comfortable environment for crypto traders is already causing serious damage to the market:

“You can already pay for computer software using Ethereum. And when the market matures and more people and companies or institutions start using it, there can be more use cases that can increase its intrinsic value. But if the government stops that itself at the root level, you cannot expect a majority of the population to be able to experience the power of blockchain.”

But probably the RBI’s attack on the Indian crypto market is not a fatal blow. Sudhanshu CHANDRA, the advocate at Supreme Court of India, told Bitnewstoday.com that sooner or later the VCs will get the status of a commodity in the country. It is only a matter of time. Now everything is hampered by the lack of adequate legislation. At the same time, CHANDRA excludes the influence of the large countries policies on the Indian authorities. According to him, the influence of China or the US on India's policy on cryptocurrencies is nothing more than a rumor.