RBI hadn't banned Cryptocurrency; Only Regulated it way too much: Sajai Singh,J. Sagar Associates

RBI hadn't banned Cryptocurrency; Only Regulated it way too much: Sajai Singh,J. Sagar Associates

The Supreme Court of India removed the ban on trading of cryptocurrencies in India recently, a decision that has come as a positive surprise for people interested in cryptocurrency trading. However, this might not be a big win for cryptocurrency fans as RBI will still have its say in regulation of trading or dealing with cryptocurrencies.

A review of the decision by the honorable Supreme Court and current situation of cryptocurrency in India by Sajai Singh, Partner, J. Sagar Associates follows.....

The Supreme Court, in the Writ Petition # 528 of 2018 (Internet and Mobile Association of India vs. the Reserve Bank of India) set aside the RBI circular dated April 6, 2018, directing entities regulated by the RBI not to deal with virtual currencies. In a very thought out judgement quoting Satoshi Nakamoto amongst others, the Supreme Court has, based on grounds of proportionality, officially lifted the ‘ban’ on cryptocurrencies in India. Satoshi’s view on the root problem with conventional currency and the trust placed on it; suggesting that the Central Bank is to be trusted not to debase the currency, however, history of fiat currencies may be full of breaches to that trust.

Ironically, the SC, while acknowledging that virtual currencies were meant to kill the demon of a central authority, has held that the RBI has the requisite power to regulate or prohibit virtual currencies. Supported by the argument that anything that may pose a threat to or have an impact to the financial system of India, can be regulated or prohibited by the RBI, despite the activity not forming part of the credit system or payment system. The Payment and Settlement Systems Act, 2007 empowers the RBI to frame policies and issue directions to banks who are system participants, with respect to transactions that fall under the category of payment obligations or payment instruction, if not a true play payment system.

RBI consistently took a stand that it has not prohibited virtual currencies in India. In fact the Inter-Ministerial Committee constituted on November 2, 2017, which recommended a specific legal framework including the introduction of a new law namely, Crypto-token and Crypto-Asset (Banning, Control and Regulation) Bill, 2018, was of the opinion that a ban might be an extreme tool and the same objectives may be achieved through regulatory measures. Of course there was a change of thinking in the Committee when they presented their final report and recommended a complete ban on private crypto currencies through a proposed legislation – Banning of Cryptocurrency and Regulation of Official Digital Currency Act, 2019. This Bill recommended creation of a digital rupee as legal tender by the central Government in consultation with the RBI; and at the same time recognising official foreign digital currencies in India.

The RBI circular, while not banning cryptocurrencies, took away the lifeline of virtual currency trading and functioning of virtual currency exchanges by disconnecting them with the regular banking sector. Post the SC judgement, cryptocurrencies are here to stay, so now more than ever it’s important that India (read RBI) get ahead and regulate them correctly.

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