Money & Banking

There’s no ban on Bitcoin, RBI tells Supreme Court 

Prashasti Awasthi Mumbai | Updated on January 21, 2020 Published on January 21, 2020

Says it has only ring-fenced banks and other regulated entities from cryptocurrency trading

In response to a petition filed by the Internet and Mobile Association of India (IAMAI), the Reserve Bank of India (RBI) has maintained that it has not banned cryptocurrencies including Bitcoin. 

The RBI asserted that it has only ring-fenced regulated entities such as banks, as the trading of virtual instruments involves high risks, according to an Economic Times report.

The RBI’s response came in a 30-page affidavit filed with the Supreme Court after the IAMAI approached the apex court against the RBI action. In 2018, RBI had asked all regulated entities, including banks, from providing services to any individual or business dealing in digital currencies. It had given banks three months to end all existing relationships with Bitcoin players. 

Illegal transactions

Earlier, the RBI had told the Supreme Court that allowing dealings in cryptocurrencies would encourage illegal transactions, and that it had already issued a circular prohibiting their use. 

According to the IAMAI, it had earlier asked the central bank to reconsider the 2018 circular ordering regulated entities not to deal in cryptocurrencies at all. 

However, the RBI noted in the affidavit, filed last September, that it had ring-fenced regulated entities to protect them from risks that include terror financing and money laundering through cryptocurrencies. It emphasised that it was not against the technological innovation.

Earlier this month, the association claimed at the hearing that the move had effectively banned legitimate business activity via virtual currencies (VCs). “RBI has not prohibited VCs in the country…has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs…The RBI has been able to ring-fence entities regulated by it from being involved in activities that pose reputational and financial risks along with other legal and operational risks,” read the affidavit, as quoted by the Economic Times report.

Initial coin offerings

The affidavit further revealed that the RBI had recommended restricting initial coin offerings (ICO) and VC asset funds in India after discussions with the Centre. Other recommendations included an enhanced Foreign Exchange Management Act to trace VC-based investments under the Liberalised Remittance Scheme. The scheme allows Indians to send abroad $250,000 a year.

The next hearing in the case was slated for Tuesday. 

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Published on January 21, 2020
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