India’s top court finished hearing petitions challenging the Reserve Bank of India’s (RBI) 2018 circular, which advised banks to refrain from dealing in cryptocurrencies. Last month, the Supreme Court of India heard arguments from both sides, but is yet to give a judgment, reported Bloomberg Quint.
The RBI has issued several circulars over the past few years, directing financial institutions not to deal in virtual currencies or provide services to individuals or entities for settling such transactions. The central bank said the circulars were in part to ensure that the banking system of the country was not compromised by an alternate payment system, such as Bitcoin, which has proven to be highly volatile.
The legal action was initiated by the Internet and Mobile Association of India, representing various cryptocurrency exchanges. The petitioners argued that in the absence of a formal law banning the trade of cryptocurrencies, businesses such as crypto exchanges were within their right to operate freely. They claim the RBI should not deny them access to banking channels to conduct business, reported the Economic Times.
In its defense, the RBI said it acted in its role as the monetary policy regulator, and its decision was within the ambit of its powers to protect the payment system of the country.
A Bloomberg reporter in a podcast said that cryptocurrency start-ups and exchanges believe that the RBI does not have the power to ban cryptocurrencies because cryptocurrencies ae more akin to ‘commodities’, and the RBI has no regulatory authority there.
Coming back to the 2018 circular, the RBI did not explicitly ban cryptocurrencies, but barred entities regulated by it to provide services to firms dealing in digital currencies.
While awaiting a Supreme Court decision, the central bank is considering issuing a central bank digital currency (CBDC). A few months ago, RBI governor Shaktikanta Das said that the central bank was strongly opposed to private digital currencies.
A recent survey by Ipsos MORI / OMFIF found that central banks were most trusted by users to issue digital money. The report also said that emerging-market citizens, such as India, are much more trusting of all institutions that might issue digital currencies. This includes tech companies, such as Facebook, which is working on its Libra stablecoin. However, Economic Times reported last year that Libra may not launch in India.
Last month, the National Institute for Smart Government (NISG) published its draft National Strategy on Blockchain for India. While crypto trade is being eyed suspiciously by the government, the draft strategy suggests developing a Central Bank Digital Rupee (CBDR) on a public permissioned blockchain.
India has about 1.2 billion mobile subscribers, while only 582 million people have bank accounts. This represents a big opportunity to use digital currencies for financial inclusion.
On the other hand, a draft bill, Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019, is being proposed by the Department of Economic Affairs.
Coming back to the NISG report, it also suggests developing a national blockchain, to help businesses develop applications. Indian companies such as Tech Mahindra and TCS have deployed blockchain development teams globally. The country is also using blockchain in governance and for food traceability.