What is the RBI’s stance?
In the most direct action taken
so far by regulatory authorities on the issue of cryptocurrencies, the Reserve
Bank of India (RBI), during its monetary policy announcement on April 6,
directed all regulated agencies,
including banks, to stop doing any business with “any person or entity dealing
with or settling virtual currencies (VC)”.
What does this mean?
The circular says that banks have
to stop all services to those dealing in VCs, including maintaining accounts,
registering, trading, settling, clearing, giving loans against virtual tokens,
accepting them as collateral, opening accounts of exchanges dealing with them
and transfer/receipt of money in accounts relating to the purchase or sale of
VCs. In addition, the RBI gave its regulated entities three months from the
date of the circular to exit any such relationship they might already be in.
Why did this happen?
This decision did not come out of
the blue. The RBI and the government have repeatedly issued warnings to people
dealing in cryptocurrencies, with the Finance
Ministry even referring to them as “Ponzi schemes” in which investors stand
to lose all their money. The fear among regulators and policymakers is that cryptocurrencies, being an alternative
source of value to fiat currency, could be misused to launder black money or
finance terrorist activities. It has also been reported that the RBI has
constituted a committee to look into the merits and demerits of issuing a central bank digital currency, which will
have the status of a fiat currency. So, ring-fencing non-state cryptocurrencies
could be the first step towards the issuing of a single, fiat virtual currency
by the RBI.
What has been the effect so
far?
Several cryptocurrency exchanges
have said that though harsh, the RBI’s stance does not explicitly say that it is illegal to buy and sell
cryptocurrencies, or that running a cryptocurrency exchange in India is
illegal. Instead, this move only segregates cryptocurrencies from fiat
currency. Most exchanges are going ahead with their cryptocurrency to
cryptocurrency transactions. Some have filed writ petitions challenging the
RBI’s order on the grounds that it violates
their rights under Article 19(1)(g) of the Constitution.
Credit: THE HINDU EXPLAINS (http://www.thehindu.com/opinion/op-ed/the-low-down-on-the-rbis-order-on-regulating-cryptocurrencies/article23750972.ece)
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