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On April 2018 Reserve Bank of India (India’s Central Bank) made a monumental decision of banning Indian banks from servicing cryptocurrency related businesses. This affected every major cryptocurrency exchange, with Zebpay, India’s former largest exchange, shifting its operation to Malta.
Following the ban, the Indian government set up a committee to look into the ban as well as study the larger effect of cryptocurrencies such as Bitcoin in the Indian economy. The committee is led by Subhash Chandra Garg, the economic affairs secretary in the ministry of finance.
Mr. Garg and his team found that banks are worried that Bitcoin and other cryptocurrencies might destabilize India’s currency, the Rupee. The Reserve bank of India has not conducted any proper study on the economic effect of Bitcoin and aren’t keen on studying it further.
An anonymous source told, Quartz,
“If bitcoin and other digital currencies are going to be allowed to be used for payments then whether it will end up destabilizing the fiat currency is a major concern for them (the Garg panel),” said one of the representatives from the cryptocurrency ecosystem who recently met the ministers, requesting anonymity. “The overall impact on the financial ecosystem that it is likely to have is still unclear and it has been a challenge to convince them on this particular point.”
Reserve Bank of India’s fears is based on a report released by the Bank of International Settlement (Central Bank for countries Central Bank) which states that although Bitcoin and other cryptocurrencies can be issued by Central Banks for settling payments, they can also destabilize traditional banks.
“General-purpose central-bank digital currencies could revolutionize the way money is provided and the role of central banks in the financial system, but these are uncharted waters,” said Benoit Coeure, a European Central Bank board member who chairs the BIS Committee on Payments and Market Infrastructures, to Bloomberg Quint in March 2018.
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