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Indian Turmoil: RBI Wants to Bring Back Crypto Ban in the Country

06 March 2020 12:56, UTC
Denis Goncharenko

The Reserve Bank of India has announced that it is going to protest the recent repeal of the crypto banking ban through a petition. The ban has been in place for over two years now and was beaten through the collection of petitions by the Internet and Mobile Association of India.

04-03-2020 16:04:25  |   News
The banking ban was first put in place because the RBI believed there was a chance that crypto trading would be rampant among private companies. Although this may be true in terms of probability, it was still not enough of an argument for the court to keep the ban in place in the face of so many outcries from the community.

The RBI plans to continue its agenda of arguing the risks of crypto trading on an institutional level in the country, but there is one small issue with their argument. So what? The RBI fails to outline the issues that institutional crypto trading may cause in the banking industry, which is why their ban was overruled so easily with a petition. Yes, there is risk in dealing with volatile assets, but isn’t every single financial asset the same?

When banks are trading on the Forex market, it bears the exact same risk as any cryptocurrency would, especially with a currency as volatile as the Rupee (in comparison to the USD).

The banking system is not at risk

One clear issue that needs to be outlined in the case of the crypto banking ban is the actual plans that the banks had for cryptocurrencies. It is very likely that any commercial bank would recognize the risk involved in institutional crypto trading and would either avoid it completely or delve into it in a very meager way.

The most common belief is that the banks would simply stock up on stablecoins and use them as a gateway to other cryptos such as Bitcoin, Litecoin, etc. The people who run these banks are not delusional or blind, they know exactly which coins are worth going for and which are worth avoiding.

Therefore, the argument that this could potentially “destroy” the banking industry is pretty much null. There is no evidence in the world that banks went bankrupt or experienced significant loss due to accepting cryptocurrencies, and there is no evidence that it could ever happen.

It is likely that the court will deny the RBI’s appeal and keep the market open. Furthermore, most companies have already started resumed fiat deposits on their platforms, which would be pretty hard to stop at this point. Furthermore, the RBI may want to keep things quiet at this point as it costs these banks and companies quite the opportunity to make money as well as cause them to lose a significant amount.

Should these companies combine their efforts and request compensation, there is a high chance that the court will rule in their favor as the ban was seen as illegitimate and devoid of any actual reason. Pushing it too hard may cause the RBI much more than a few commercial banks selling and buying Bitcoin every now and then.

Image courtesy of Hindustan Times