The 'Cryptocurrency' was introduced in 2009, and it has intrigued the world since then. It came in as a new revolution in the economy of not just a particular country but almost the entire globe. The most famous form of cryptocurrency is the 'Bitcoins', and the time since it was presented to the world, people have been trading and investing in it even though it was not regulated. Not regulating these cryptocurrency means that even if there are illegal activities like money laundering, fraud and even terrorist funding. This implies that there is no protection either for a consumer or for businesses.
RBI's Circular: Outlining Potential Threats
In India, RBI is the sole authority that regulates the monetary and economic policy and the Commercial Banks, the NBFC's, Co-operative Banks functions under the direction of the RBI, and it is the banker to all the banks in India, so it takes into consideration the interest of the consumers as well as the businesses with regards to the monetary policy and regulations. As the consumer interest is one of the focal points of RBI's monetary policy, it had not been keen on promoting cryptocurrencies in India. All through the point here to be noted is that RBI imposed a ban on private cryptocurrencies and tried to discourage people from trading in any sort of such instrument by not providing the framework to the commercial banks to facilitate the use of digital currency.
As per the circular dated 24th December 2013, the RBI highlighted potential treats that the virtual currencies may pose and RBI categorically made their points. No central bank or monetary authority has approved the development, trading, or use of VCs, including Bitcoins, as a payment medium. The organizations in question are said to have received no regulatory licenses, registrations, or authorizations in order to conduct such activities. Following are the associated risks.
- VC's are held and traded by digital/electronic media, they are susceptible to losses from hacking, loss of password, compromise of access credentials, malwares etc., and because VC's are not created by a central and authorized agency, the loss can result to loss of all the VC's held by any person.
- Payments in VC's are done through peer-to-peer basis so there is no regulating body in between which could look into consumer problems or any disputes and even no scope of charge backs.
- Volatility is another important issue because VC's value is a matter of speculation and because of huge volatility in its value the user is exposed to losses.
- As there is a lack of any particular and proper jurisdiction of exchange platforms so the legal status and financial risk are greater.
- There are also reports regarding illicit and illegal activities in several jurisdictions. The is no information of the counterparts in peer-to-peer transaction this can lead to money laundering, financing terrorism etc.
As per the RBI circular dated 6th April 2018, it prohibited all the entities under RBI namely all the Commercial and Co-Operative Banks, Payments Banks, Small Finance Banks, NBFC and Payment System Providers because of the associated risks and also cautioned users, holders and traders of virtual currencies, including Bitcoins. After this notification all those individual and business startups that were trading in crypto currency started wrapping up their business.
The Inter-Ministerial Committee (IMC), headed by Subhash Chandra Garg, secretary of the Department of Economic Affairs (DEA), submitted a report to the finance ministry in July 2019 calling for a ban on cryptocurrency in India. Except for the government-issued cryptocurrency, the committee recommended that all private cryptocurrencies be prohibited in India. The government's decision has put a stop to blockchain startups and other related businesses. Many cryptocurrency startups and enthusiasts have debated the rationale of the decision. Many major exchanges, including Zebpay, Koinex, and Coinome, have ceased operations. Similar decision and the statement were given by the Ministry of Finance and securities and Exchange board of India from 2013 to 2019.
Challenge to the RBI's Circulars
Amid all of these decisions that were being taken by the RBI and the ministerial committee a petition was filed by the Internet and Mobile Association of India in the Supreme court, they contended that: -
- RBI had no power to prohibit trading in virtual currencies.
- It should set parameters to deal in VC if RBI had powers.
- Many of the developed and still developing nations having probed into the VC's and found nothing pernicious about it.
- That every crypto currency is not anonymous
- A complete prohibition of an activity that has not been declared unlawful by law, particularly through RBI subordinate legislation, is a violation of Article 19(1) (g).
The decision in this case of Internet and Mobile Association of India vs RBI (2020) came in favour of the crypto industry. The 180-page-long judgement, which cites over 50 cases from around the world, has not only clarified the legality of cryptocurrencies in India, but it is also likely to set a precedent (as a reference) for many other countries around the world — particularly developing countries. The court held that the
- Reserve Bank of India is the country's central bank, and The Banking Regulation Act, 1949, RBI Act, 1934, and the Payment and Settlement Systems Act, 2007 collectively acknowledge and confer very wide discretion upon RBI namely to use the country's currency and credit system to its benefit,
- The RBI failed to prove that virtual currency trading caused any damage to banks or controlled agencies, according to the court.
- It also stated that no flaws in the operation of virtual currency exchanges had been identified, and that virtual currency trading was not prohibited.
- The financial system was also found to be a lifeline for virtual currency exchanges, according to the court.
This has reignited the spark among the individuals who wanted to trade in virtual currencies as well for the businesses that went out of operation because of the RBI's reluctance to initiate dealing of VC's.
Way forward for RBI and Government
After the decision, now the RBI and the government are in action to play on Crypto Currency and Governor of the Reserve Bank of India (RBI) Mr. Shaktikanta Das has stated that the RBI has reservations about cryptocurrencies and is developing its own digital currency. He also mentioned that it would be distinct from the existing cryptocurrencies on the market.
This statement of the RBI governor is aligned with the central governments decision to introduce a new bill on crypto currencies in the name of The Cryptocurrency and Regulations of official Digital Currency Bill, 2021.
Besides, all of these events in India where the struggle is between the RBI and the cryptocurrency players, China is coming up with its version of digital currency that will be controlled by its central bank. It is supposed to provide China's government with a slew of new resources for monitoring the country's economy and population.
Where in USA, Canada, Brazil, South Africa, Argentina, Israel and many more countries have already taken a leap forward in the world of Cryptocurrencies and even China is looking to come with its government backed virtual currency, it should now be a dawn for India to move in this direction to ensure that we are not left behind in this race because if India wants to achieve the dream of being one of the major super power with attractive investment opportunity for the world, it should work to establish a framework to facilitate cryptocurrencies or even introduce one of its own.