Indian RBI's Stance on Crypto
The Supreme Court verdict made RBI recognize the power of cryptocurrencies and take a back seat.
In light of the ruling by the Supreme Court of India, which set aside the Reserve Bank of India's (RBI's) directive to banks and financial institutes to stop services to clients dealing in virtual currencies, RBI has backed off and is waiting for greater clarity from the government on cryptocurrencies.
Cryptocurrency has become very popular in the past few years. A few years back in 2018, when Bitcoin prices were touching new highs, RBI issued a circular without any basis and asked banks and financial organizations to stop servicing people buying cryptocurrencies through banking channels.
After the circular, some crypto exchanges along with the Internet and Mobile Association of India (IMAI) approached courts and after two years, in March 2020, the Supreme Court set aside the RBI 2018 circular.
Between the 2018-2020 period, many exchanges closed down operations, some migrated to pro-crypto nations like Malta, Estonia, but some moved to peer-to-peer exchanges to bypass the RBI circular.
RBI in its circular has cited massive volatility in prices of cryptocurrencies and growing cases of money laundering cases due to an increase in crypto trading in the country.
However, as per an estimate as of April 2021 in India only 15 million people are trading in cryptocurrencies and have an exposure of 6.6 billion, whereas globally 400 million people trade in cryptocurrencies with an exposure of over 2.15 trillion.
Crypto: a serious, major concern
Recently, RBI governor Shaktikanta Das said that the central bank continues to have ‘serious and major’ concerns regarding cryptocurrencies such as Bitcoin.
“We have conveyed this to the government and the final call on this will be taken by the concerned ministry, which is still deliberating on whether to allow cryptocurrencies or impose a complete ban.”
It was reported recently that the finance ministry will not place a blanket ban on cryptocurrencies, but will categorize all crypto projects on the basis of their use cases.
In this regard, the ministry has prepared a new bill titled ‘Cryptocurrency and Regulation of Official Digital Currency Bill' pending before the cabinet for clearance, which is expected to be made public by October 2021.
Das stressed that the RBI would like to have credible explanations and answers as to the value that cryptocurrencies can get in the Indian economy.
Even after the Supreme Court order when banks were not cooperating with clients dealing with cryptocurrencies, RBI on 31 May 2021 issued another circular stating that the 2018 circular is no longer valid in which it has asked banks and financial organizations against transactions in cryptocurrencies.
Adding further, the circular said that banks must carry out customer due diligence processes in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act 2002, in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances.
Ever since the RBI tried to put a ban on cryptocurrencies, they have become more popular. Initially, it was Bitcoin that was making a buzz, but now Dogecoin, Ethereum, Ripple, Cardona, Tether, others have been catching the eyeballs of crypto investors.
Even a home-grown crypto project based on the Ethereum project, Polygon (MATIC) is not far behind. It has become one of the top traded crypto today with over $9 billion in market capitalization.
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