The Reserve Bank of India (RBI), India’s central bank, has been cornered. According to India’s Supreme Court, RBI needs to address issues raised by cryptocurrency businesses in the country.
In July 2018, RBI released a circular prohibiting banks from serving crypto-focused businesses such as cryptocurrency exchanges. Unfortunately, without banking services, these cryptocurrency exchanges and other virtual currency operators are essentially unable to serve its customers and operate in India. In May 2019, for example, Coinome, a crypto exchange, announced that it would stop its operations in India.
In an email sent to its customers, Coinome said:
“India is currently going through uncertainty on crypto guidelines and regulations. The government of India has not yet taken a decision on the regulatory framework for crypto exchanges or wallets. Further, the Supreme Court is yet to act upon the public interest litigation on (the) regulation of crypto assets.”
A dramatic turn of events in Supreme Court
Since then, the Internet And Mobile Association of India (IAMAI), representing cryptocurrency businesses took RBI to Court to challenge its ban.
During the Court’s latest hearing on 21 August 2019, Supreme Court Justice Rohinton Fali Nariman severely criticized RBI’s actions towards the crypto businesses.
The cryptocurrency exchanges made suggestions to RBI for additional requirements on them in lieu of a complete ban on providing services. RBI’s response that they were forwarding these suggestions to the Government was met with anger by Justice Nariman, who pointed out that this was not an answer.
Justice Nariman directed that RBI must respond to the exchanges’ suggestions. RBI agrees for the hearing to be deferred for 2 weeks so that RBI can come up with a justification for the ban.
The hearing will resume on 25 September 2019.
RBI’s ban will be catastrophic for India
Nakul Dewan, a senior advocate representing cryptocurrency exchanges, argued during Wednesday’s hearing that the RBI imposed a ban without studying the positive impact cryptocurrencies and blockchain technology have on the Indian economy.
Notably, crypto businesses advocated for a regulatory framework to govern the Indian crypto market instead of a blanket ban. However, advocates representing cryptocurrency operators acknowledged that crypto needs to be governed to avoid money laundering, tax evasion, terrorism financing, among other ills.
Unfortunately, the case is assuming a new turn at a time when an interministerial committee has recommended a total ban on cryptocurrency activities in the country.
This could prove catastrophic for India. According to Crebaco Global Inc., a crypto and blockchain research firm, India will lose almost US$13 billion worth of business if cryptocurrency is banned.