Indian regulators have cleared their stance on the legality of Bitcoin and other cryptocurrencies in India in the past – latest being a circular from the Reserve Bank of India (RBI) on 6th April 2018.
This has again brought the cryptocurrencies in the limelight.
In this article
- Why Bitcoin Is in the News Again in India
- RBI’s Latest Circular on Cryptocurrencies
- Other Indian Regulators View on Cryptocurrencies
- A Brief about Cryptocurrencies
Why Bitcoin Is in the News Again in India
The RBI circular effectively banning Bitcoin and other cryptocurrencies has been challenged in court.
Cryptocurrency Firms Have Knocked Court’s Door
The Delhi High Court has sought the response of the central government, the RBI, and the Goods and Services Tax (GST) Council on a plea challenging a circular by RBI which prohibits banks and financial institutions from providing services in relation to virtual currencies such as Bitcoin.
A bench of justices S Ravindra Bhat and A K Chawla issued a notice to the Ministry of Finance, the Reserve Bank of India (RBI), which issued the circular, and the GST Council and sought their reply by May 24.
What the Petition Is About
The order came on the plea by Gujarat based company, Kali Digital Ecosystems Pvt Ltd, which was proposing to undertake the business of operating a crypto-currency exchange system for customers within India.
Kali Digital had approached the High Court of Delhi on April 16, 2018, challenging the RBI circular dated April 6, 2018 “Withdrawing Banking Support to Virtual Currency Exchanges”.
Apart from seeking quashing of the circular on the ground that it is arbitrary, unconstitutional and violation of the Constitution, the petition has also sought a direction to the GST Council to frame appropriate regulation on cryptocurrencies.
Reason for Petition
RBI’s Latest Circular on Cryptocurrencies
The Reserve Bank of India (RBI) on 6th April 2018 issued a new circular on cryptocurrencies. This the 4th time RBI has conveyed its stance on digital currencies.
What the Latest Circular Stipulated
According to this circular:
- Its regulated entities such as banks and non-banking financial companies (NBFCs) must have no links to firms or individuals dealing with or settling cryptocurrencies like bitcoin. The directive comes into effect immediately.
- For entities which are already providing such services, three months time has been given to unwind such activity
RBI’s Reason for Such Circular
According to the RBI, “Digital tokens issued by private parties are getting international attention for quite some time for their speculative value. Internationally, while the regulatory responses to these tokens are not uniform, it is universally felt that they can seriously undermine the anti-money laundering/FATF (Financial Action Task Force) framework, adversely impact the market integrity and capital control. And if they grow beyond a size they can endanger financial stability as well.”
Past Stances of RBI on Cryptocurrencies
In the past, RBI had issued three warnings starting December 2013 in this regard. In all of them, the central bank cautioned users, holders and traders of the risks involved in dealing with these digital currencies.
It also clarified that it had not given any licence or authorization to any entity or company to operate schemes or deals related to cryptocurrencies.
However, RBI has said that it recognizes the importance of Blockchain technology, or distributed ledger technology that lies beneath these digital currencies.
According to RBI, “Blockchain technology has potential benefits for financial inclusion and enhancing the efficiency of the financial system,”
On this regard, RBI has set-up an inter-departmental group to study and provide guidance on the desirability and feasibility of introducing a central bank digital currency. The group will submit its report by the end of June 2018.
Other Indian Regulators View on Cryptocurrencies
View of Indian regulators as follows:
- In May 2017 , the central government sought public views on future of bitcoins. Government’s official platform MyGov had asked, “Whether Virtual Currencies (VCs) should be banned, regulated or observed?” The comments could be posted before May 31. Nearly 4,000 submissions were made to the government’s queries.
- On the future of cryptocurrencies, finance minister Arun Jaitley on November 30, 2017, said that recommendations are being worked upon. “The government’s position is clear, we don’t recognise this as legal currency as of now,” Jaitley said when asked whether the government has taken any decision on crypto currency.
- Income Tax (I-T) department mulls taxing the gains made by bitcoin traders and investors as it conducted surveys, on December 13, of exchanges in Delhi, Mumbai, Pune, Bengaluru and Hyderabad.
- Indian Finance Minister Mr. Arun Jaitley in his last full budget 2018 before the general election, clear up the government’s intentions regarding Bitcoin. He announced to ban the use of cryptocurrencies for payments, kicking Bitcoin’s already-sliding value further down the slope. It started probing illegal exchanges in December 2017, and also established a panel to work out new policies.
Read Is Bitcoin Legal in India in 2018? The FM Finally Answers for the final stance of India toward legality of Bitcoin.
A Brief about Cryptocurrencies
A cryptocurrency is a digital resource designed to work as a medium of exchange that uses cryptography to control its creation and management, rather than relying on central authorities like other media of exchange do.
In simple language, cryptocurrency is a digital currency. No bills to print or coins to mint. It is decentralized and there is no government, institutions (like a bank) or other authority that controls it.
Owners are anonymous and bitcoin connects buyers and sellers through encryption keys. And it isn’t issued from the top down like long-established currency, rather, cryptocurrencies are mined by powerful computers connected to the internet.
Some popular cryptocurrencies are:
These cryptocurrencies are highly risky and unstable instruments to invest in.
Bitcoins can make you rich or take away everything you own within a day. It is a game of risk assessment and requires investors to have knowledge of what they are doing.
Mutual funds are highly risk averse as compared to cryptocurrencies and gives you good return too. The best thing about investing in mutual fund is that it provides you wide scope of investment option depending on your risk appetite.
Investing in mutual funds online is very simple and paperless. Simply log in to your Groww account, choose a fund, and invest using net banking – exactly like you would when shopping online.
Disclaimer: the views expressed here are of the author and do not reflect those of Groww.