SC lifts RBI crypto ban: What this means for investors. The Supreme Court today, struck down a ban imposed by the RBI on banks from allowing their systems to be used for cryptocurrency related payments in April 2018. … This limits the supply of cryptocurrency rather than leaving it to the discretion of a central bank.
- Cryptocurrency is not issued by a centralised authority such as a central bank
- Enforcement agencies in India grew worried about its potential to act as a store for illicit wealth.
Reserve Bank of India (RBI)
- India’s Supreme Court on Wednesday overturned central bank’s two-year-old ban on cryptocurrency trading in the country in what many said was a “historic” verdict.
- The Reserve Bank of India had imposed a ban on cryptocurrency trading in April 2018 that barred banks and other financial institutions from facilitating “any service in relation to virtual currencies.”
- At the time, RBI said the move was necessary to curb “ring-fencing” of the country’s financial system. It had also argued that Bitcoin and other cryptocurrencies cannot be treated as currencies as they are not made of metal or exist in physical form, nor were they stamped by the government.
- The 2018 notice from the central bank sent a panic to several local startups and companies offering services to trade in cryptocurrency. Nearly all of them have since closed shop.
- In the ruling today, the bench, headed by Justice Rohinton F. Nariman, overruled central bank’s circular on the grounds of disproportionality.
- A group of petitioners including trade body the Internet and Mobile Association of India had challenged central bank’s circular, in part, arguing that India should look at most other nations that are not only allowing cryptocurrency trading, but have moved to launch their own virtual currencies.
- Nitin Sharma, a tech investor, said the top court’s ruling was “historic” as it finally brought some clarity to the matter.
- “Historic day for Crypto in India. We can now innovate. The entire country can participate in the Blockchain revolution,” said Nischal Shetty, founder and chief executive of Bitcoin exchange platform WazirX.
Here are 10 things to know:
- A three judge bench of Justices Rohinton Nariman, Aniruddha Bose and V Ramasubramanian pronounced the judgment. A detailed judgement was expected in the evening.
- IMAI had argued that cryptocurrency is not strictly currency and was more in the nature of commodity, and the RBI does not have powers to impose such ban in the absence of a law in that regard prohibiting cryptocurrency.
- The RBI contended that it had, right from 2013, been cautioning users of cryptocurrencies and that it considers cryptocurrency a digital means of payment which has to be nipped in the bud so that the payment system in the country is not jeopardized. The regulator also argued that it is empowered to take decisions banning cryptocurrencies.
- In April 2018, the central bank had tightened rules to discourage the use of virtual currencies such as Bitcoins, prohibiting banks and financial institutions from providing any related services.
- The central bank gave entities three months to snap all banking relationships with individuals or businesses dealing in virtual currency. That ban was aimed at “ring-fencing” the country’s financial system from the private virtual currencies, deemed illegal by the government.
- Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
- Bitcoin – the largest and most popular among cryptocurrencies – has appreciated by almost half so far this year, and last month, it touched the $10,000 mark against the US dollar for the first time since October.
- Other major cryptocurrencies which tend to move in correlation with Bitcoin have also gained this year; while Ethereum has more than doubled, Ripple’s XRP is up over 75 per cent.
- Bitcoin’s 11-year history is replete with fast ascents and equally rapid plunges. In late 2017, it rose three and a half times in just 35 days to reach almost $20,000. It then slumped 70 per cent in seven weeks. Such wild and often inexplicable swings are why Bitcoin faces a struggle to become a functioning currency.
- While many regulators around the world have been warning against trading in Bitcoin, some have backed it. In 2017, Japan accepted Bitcoin as legal currency and even officially recognised exchanges dealing in the cryptocurrency.
The government though is yet to act on these recommendations and is yet to finalse regulations around cryptocurrencies.
On several occasions, the government along with the central bank, had cautioned the public about the risks of cryptocurrencies. If the government follows the panel’s recommendations, it could signal the end of the road for these digital currencies in India.