The cryptocurrency debate in India has turned on its head.
The Reserve Bank of India (RBI) has initiated a crackdown on cryptocurrencies such as bitcoin, even as it considers a proposal for issuing its own digital currency.
“It has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately,” the RBI said in a statement.
This may mean the end of the road for those who own bitcoin or its peers, as well as the many virtual currency exchanges. The existing business ties must be wound down in the next three months.
“Internationally, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control,” RBI deputy governor BP Kanungo explained at a press conference on April 05. “And if they grow beyond a critical size, they can endanger financial stability as well.” AML and FATF are international policy frameworks aimed at combating money laundering and terrorist financing.
Virtual currency players in India are naturally disappointed with the RBI’s decision.
“I don’t believe this is the right direction that the central bank has taken. This will cause panic among a few million people in India who are already using cryptocurrrencies,” said Sathvik Vishwanath, co-founder of Unocoin, a virtual currency exchange in the country. “If they want to launch their own digital currencies, they don’t need to ban existing ones.”
“This means that banks will not probably give loans to cryptocurrency exchanges. And the transactions will also get affected,” said Shubham Yadav, co-founder of of Coindelta, another cryptocurrency exchange. “However, the silver lining here is that they still haven’t banned it fully.”
The central bank, meanwhile, has constituted an inter-departmental group to study the feasibility of a digital currency backed by the RBI. “This will be in addition to the paper currency that we have. It also holds the promise of reducing the cost of printing of notes,” Kanungo said. The committee will submit its report by June 2018.
Some cryptocurrency players see this as good sign. “RBI issuing their own virtual currency just shows that soon there will be an ecosystem where cryptocurrencies will be central to the ecosystem and the government will not be able to ignore it,” said Coindelta’s Yadav.