RBI vs. Cryptocurrency
In 2018, RBI issued a circular to warn all the banks in the country to refrain from dealing in transactions involving cryptocurrency. The reasons cited were cryptocurrency is very volatile and it has no central authority to control it that’s why it can be used for various illegal purposes, as of now, cryptocurrency is not a legal tender in India so, blaming any cryptocurrency exchange for any fraud is not just because they owe no obligation towards their customers like the normal currency exchanges. An organization that includes various cryptocurrency exchanges named IAMAI filed a petition in the supreme court challenging the circular issued by RBI. Petitioners argued that this circular is banning an activity which is legitimate i.e. Trading in virtual currencies. RBI claimed that circular issued was not issued for banning cryptocurrency but it was issued to warn the citizens of the country to stop transacting in such type of currency, which is not legally accountable to its customers. The apex court held that the act of RBI was not a colorable exercise of power. SC held that as cryptocurrency is not posing a threat to the Indian financial system, its free flow should not be stopped. As due to the COVID-19 situation we are living in a digital world and cryptocurrency has the potential to become the future currency, but by imposing a curb on such currency, its potential is destroyed. As cryptographic money and blockchain innovation become to a greater degree a typical family unit word, numerous specialists in the field have straightforwardly pondered whether the innovation's unstable development will be in the long run prevented or hosed by endeavors to copyright, patent, or brand name explicit digital currency or the blockchain advancements related with them. It is just regular that organizers of the new companies that use digital currency or explicit blockchain innovations may look for lawful assurance on the off chance that they locate a specific technique, process, or even code remarkably basic to their business. Accordingly, copyright, patent, and brand name law would all be able to be utilized to give a type of lawful security regarding cryptographic money use just as blockchain advancements.
What is RBI?
RBI (Reserve Bank Of India) is a statutory body and a central bank of India. It regulates the financial system of India. It was established on April 1, 1935 under the reserve bank of India Act 1934.
Executive head of RBI is a governor who is assisted by four deputy governors, the head office of the RBI is situated in Bombay. The four local boards of RBI are established in Delhi, Kolkata, Mumbai, Chennai. Some important functions of RBI are:
RBI has the monopoly or the sole right of printing and issuing currency notes of various denominations, but RBI doesn't, t prints one rupee note as it is printed by the ministry of finance.
RBI acts as a banker and adviser to the central as well as state government, it performs all the banking functions of the state as well as central government, advises them on matters related to economic and monetary policy and it also manages their public debt. RBI also acts as custodian of foreign reserves in India.
RBI controls the credit flow in the market by controlling the extra flow of money in the market to prevent inflation.
What is Cryptocurrency?
In this current world of the internet, various digital currencies have emerged. The way in which they exchange the value is very different from paper currencies. Cryptocurrency is a digital currency that exists in the digital world and it uses encryption for keeping the transaction safe with the help of blockchain technology. Blockchain technology helps in keeping the digital transaction of cryptocurrency safe. Cryptocurrency works as an ordinary currency such as rupee, dollar,etc., but it exists in an electronic world.
Why RBI decided to put a curb on cryptocurrency?
The Reserve Bank of India released a circular in 2018 to direct all the banks in the country to refrain from dealing with any transaction which involves cryptocurrency stating that such transactions are undermining the integrity of the banking system. RBI said it did not impose a ban on cryptocurrency under any existing law of India, it just issued this circular as a warning to make all the banks aware of the risks that are involved in dealing with cryptocurrency transactions. By issuing this circular as a warning RBI wanted to make sure that the current banking system of India is not getting compromised by any other payment system dealing in cryptocurrencies because they are extremely volatile.
Reasons cited by RBI for releasing such circular:
Cryptocurrency is not a legal tender as of now so, there is a great chance of losing the right to demand the value of cryptocurrency one is holding, a cryptocurrency exchange can shut down its office any day because a currency which is legal tender is under an obligation to pay the value of money one is holding but there is no such obligation on cryptocurrencies as they are not a legal tender.
Cryptocurrency is very volatile, so, it is often subjected to illegal use. Cryptocurrency is anonymous which means finding start and end note of a transaction is difficult because it is based on complex coding because blockchain technology(a decentralized ledger) is used to securely keep the record of transactions but this feature is often exploited for criminal activities as many ransomware hackers have demanded a ransom in cryptocurrency because these transactions are non-traceable by any state or central authority.
Value of a currency is based on its demand and supply in the market but in case of cryptocurrency, it’s not true because it is not used as a mode of exchange payment but people use it for investment purpose hoping that its value will increase and surge of its value is depended on people,s sentiments but it will not increase consistently, it's just like a balloon which will burst one day due to excess air.
Take of Supreme Court on RBI’s curb on cryptocurrency?
“The divine line "Bitcoin/Cryptocurrency is for criminals" is a cunning defensive strategy created by the so-called traditional financial services sector.” ― Mohith Agadi
A bench consisting of three judges - Rohinton Fali Nariman, S Ravindra Bhat, V Subramaniam struck down the curb imposed by RBI on free flow and trade of cryptocurrency. This matter reached the apex court when the Internet and mobile association of India (IAMAI) showed its objection towards the circular of RBI for curbing the trade in cryptocurrency. Petitioners argued that this circular will lead to destroying the abilities of the law enforcement agencies to regulate the illegal activities in this industry and this circular is also banning an activity which is legitimate i.e., trading in virtual currencies.
RBI claimed that under section 35A, 36(1)(a), 56 of the Banking Regulation Act 1949, section 45A and 45L of RBI Act,1934 and section 10(2) read with section 18 of the Payment and Settlement system act, 2007 empowers RBI to direct the entities regulated by it:
Neither to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies.
To end the relationship with the persons or entities who are providing services to people dealing in virtual currencies.
The court observed that RBI has not banned cryptocurrency but it has issued a circular which can cause disruption in trading of cryptocurrencies. RBI has issued this circular without finding any issues and faults in the pattern in which cryptocurrency exchanges function and virtual currencies are also legitimate. The entities and banks, which are regulated by RBI have yet not faced any problem or loss because of the way in which cryptocurrency exchanges function.
The Apex court held that anything that is capable of posing a threat or leaving a bad impact on the financial system of the country can be regulated or prohibited by RBI but the said activity i.e. Trading in cryptocurrency is not posing a threat to the Indian Financial System.
The apex court also rejected the contention that this circular issued by the RBI was a move with bad intention or a colorable exercise of power. The repeated warnings from RBI since December 2013 indicate that they genuinely wanted to warn the gullible public and safeguard their interests.
Conclusion: Future of cryptocurrency in India
When cryptocurrencies started emerging around the world, many countries across the globe started making efforts to make a secure and reliable system for transacting in this new form of currency. In 2013, India labeled bitcoin as “ wild west territory”, they said it is untrustworthy and can facilitate darknet activities like conning of innocent people. The approach of India towards cryptocurrency has changed after the judgment of the apex court in IAMAI vs. RBI.
In 2018, more than 500 merchants and big companies like dell started accepting payment in cryptocurrency but there is still a long way cryptocurrency has to go as people still trust fiat money and paper currency more than cryptocurrency. Though RBI banned cryptocurrencies under the digital India plan Indian government is doing many efforts to use cryptocurrencies in a vital way for the financial system of India like setting up a Mygov portal to take public opinion on cryptocurrency. Several meetings took place to make regulations and finding a proper system for the functioning of cryptocurrencies in India. As the apex court ruled that RBI,s regulation to curb of cryptocurrency is unconstitutional, this is a green signal for the cryptocurrencies. Till date more than 5 million people in India use cryptocurrency and the numbers will surely grow because of changes in the economic policy. As many companies have started trading in cryptocurrency there are still many opportunities to explore and a little support from the Indian government can help cryptocurrency to become a major asset of the Indian economy in the coming future.
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