During the week, news broke of India’s changing stance on cryptocurrency with headlines from several news sources hinting at a potential Indian crypto ban, sending markets into a panicked whirlwind and causing a Bitcoin price drop to $6,600. With common sense returning as the dust settles and prices recover accordingly, a more measured dissection of the Reserve Bank of India’s press release is in order
The RBI’s statements on cryptocurrency are included in the recent “Statement on Developmental and Regulatory Policies” report, released on the 5th of April. In the report, a section entitled “Ring-fencing regulated entities from virtual currencies” highlights both the benefits and potential risks of cryptocurrencies:
“Virtual currencies have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.”
The report continues to state that it has:
“Repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies” and has decided — effective immediately — that “entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs (virtual currencies)”.
No, the Indian Government is Not Banning Crypto
While many news sources have been quick to capitalize on the media impact of these statements, it’s not entirely accurate to interpret the report as a blanket ban on cryptocurrencies.
For starters, the RBI is purely a regulatory body. As a central banking authority, it controls policy and sets directory regulation for entities that come under its jurisdiction, namely banks.
Central banking institutions do not have any means of creating legislation. However — the Indian government has not yet deemed cryptocurrency illegal.
Should Indian banks not follow this threat in the three months following April the 5th, the RBI will remove the banks “partnership” status. A seemingly fiduciary title.
A ban of such magnitude would be inhibitory to the development of India’s rapidly growing blockchain innovation ecosystem as a whole. Indian cryptocurrency exchanges would likely follow the example of other exchanges that have been negatively impacted by regulatory pressure — such as Binance — and move to crypto friendly waters such as Malta or Estonia, leaving Indian government to lose out on a lucrative tax opportunity.
The RBI’s announcement also contradicts statements made by Indian Prime Minister Narendra Modi, who sees such technologies as having a
“deep impact in the way we live and work” and has been a staunch advocate of digital empowerment aided by digital infrastructure”.
Reserve Bank of India Considers State Cryptocurrency
The RBI report follows an announcement delivered via media briefing after a two-day meeting of the Indian Monetary Policy Committee, in which the Deputy Governor BP Kanungo highlighted the potential for a state cryptocurrency:
“While many central banks are still engaged in the debate, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency.”
While not as sensational as some of the FUD-fueled clickbait headlines published by larger news outlets, the potential for a state-backed Indian cryptocurrency could provide the framework to support a significant boost in adoption for the country. In an interview with the Times of India, Deputy Governor B.P Kanungo stated that a report on the feasibility of a central bank digital currency would be submitted by the end of June.
RBI’s interest in their own cryptocurrency is due to the “rapid changes in the landscape of the payments industry along with factors such as the emergence of private digital tokens and the rising costs of managing fiat paper/metallic money.”
RBI cites this as the impetus for central banks around the world to introduce “fiat digital currencies.”
Kanungo adds that a state-backed cryptocurrency could “hold the promise of reducing the cost of printing of notes.”
Until then, many will be keeping a close eye on the how the world’s 3rd most considerable purchasing power reacts to this changing face of digital economics. India has long been a significant player in the global fintech industry, recently dethroning of China as the fastest-growing major economy.
Mass adoption of cryptocurrency has already received overwhelming positive traction in India, with Crypto Mining Training courses rolling out across 30 cities while nationwide currency searches are showing Ethereum dominating both Bitcoin and Fiat keyword stats.
As the Indian blockchain landscape continues to evolve, early adopters are looking towards the long-term — seeing India as a fundamental feature on the international crypto horizon.
Cover Photo by AussieActive on Unsplash
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