India: RBI doesn’t want blockchain to undermine faith, trust in digital payments

The three-judge bench of the Supreme Court of India reconvened today to hear the ‘Crypto v. RBI’ case after the last hearing took place way back in August 2019. At the previous hearing, there were arguments made about the Reserve Bank of India’s jurisdiction behind levying a banking ban and the bench had then asked India’s central bank to respond to the exchange’s representation.

In its reply, the RBI said that the institution has the “sole right to operate currency and credit system in the country,” reported CoinCrunch’s Naimish Singhvi. The RBI highlighted that it practiced its right to secure monetary stability and regulated entities exposed to “reputational risks” by offering services to exchanges.

The CEO of CoinCrunch, in a tweet thread, stated,

“RBI cites the example of “Libra” (indirectly) to say that VCs are risk associated and hence the US watchdogs went after Facebook and its plan to launch its own virtual currency. RBI also says Virtual currencies and crypto-assets are terms that can be used interchangeably”

The RBI strictly disagreed with the IAMAI’s point of “crypto-assets being essential to blockchain.” Also, even though it is open to the use of blockchain technology, the RBI deemed cryptocurrencies as a risk to users. Noting its duties, RBI said that it had to act in the interest of users because “not all can mitigate the risk themselves.” At the same time, it promoted the idea of an RBI-backed Digital Currency, citing the 2016 Ratan Watal Committee report.

“RBI says it encourages the use of (blockchain) technology but in a manner that it “does not undermine the faith and trust in digital payments””

Even though there have been dialogues in the country regarding the state of cryptocurrencies, many industry leaders have recommended caution to venture capitalists. The RBI has even questioned the duties of IAMAI members as it is supporting transactions to foreign exchanges, noting “they aren’t truly following best practices as depicted by IAMAI.” The price volatility makes it difficult for the RBI to enforce compliance laws like the Foreign Exchange Management Act [FEMA] and Liberalized Remittance Scheme [LRS], even if the recipient is identified as a foreigner.

While stressing on the downsides of the lack of a banking ban, the RBI claimed that it has not prohibited Virtual Currencies in India, but just directed entities to not provide services to businesses or persons dealing in VCs. The central banking institution also expanded on the risk associated with the anonymous nature of crypto, while making note of the fact that the current IT Act may not be adequate enough to address such cybercrime issues.