The debate on the Indian crypto ban has been going on for quite some time now. In response to the Internet and Mobile Association of India (IAMAI) petition, the Reserve Bank of India (RBI) clarified through an affidavit that there is no Indian crypto ban. How will the court case eventually play-out for the IAMAI against the RBI?
22 January, 2020 | AtoZ Markets – The debate on the Indian crypto ban has been going on for quite some time now. Ever since the RBI mandated the circular in April 2018. Wherein, the Indian central bank gave orders to the entities it regulates to cease providing services to people or entities that deal with or settling cryptocurrencies.
The Internet and Mobile Association (IAMAI) has taken action against RBI to reconsider its decision on cryptocurrencies within India. In fact, the IAMAI took the RBI case to the supreme court. The case against the RBI is still ongoing at the moment.
The RBI Had Not Banned Cryptocurrencies
Following the RBI circular of April 2018, the banks closed the cryptocurrency exchange accounts. Some of them even ceased trading. Several stakeholders in the crypto sector immediately filed petitions about the banking restrictions, including the IAMAI. The petition of the IAMAI is under the consideration by the Supreme Court.
In response to the petition of the IAMAI, the RBI responded to the Supreme Court on September 2019 with a 30-page document. In this affidavit, which has been recently accessed by the public, the Indian Central Bank clarified that it had not ban cryptos:
The Reserve Bank of India said it did not ban cryptocurrencies such as bitcoin in India. But only ringfenced regulated entities such as banks, from the risks associated with trading of such virtual instruments.
The central bank’s response to IAMAI further reveals the discussion of 2018 with the government regarding the regulation or ban on cryptocurrencies. In addition to suggesting that ICOs should be prohibited. The RBI said funds investing in cryptocurrencies should not allow to settle in India. The RBI also proposed to amend the Foreign Exchange Management Act to prevent and monitor remittances for investments in virtual currencies made under the Liberalized Remittance Scheme.
Why Did the RBI Restrict Banks from Crypto Activities?
RBI justified its banking restrictions by arguing that crypto activities pose reputational and financial risks alongside other legal and operational risks. The RBI wrote in its affidavit:
All possible ways that facilitate the transfer of anonymous cross-border funds need to be acted upon swiftly and stringently dealt with. Virtual currencies have been used to purchase illegal and illicit goods ranging from weapons and ammunition to drugs.
However, the Indian government told the Council of States in July last year that people can use cryptocurrency for secret and illegal activities. But there is no data to confirm that it is used primarily for such activities.
Supreme Court Hearing to End Banking Restrictions
Last week, the Supreme Court resumed the hearing of crypto case. The counsel for IAMAI, Ashim Sood, made extensive arguments in an attempt to convince the court to provide relief. He claims that by removing the bank accounts of the cryptocurrency exchanges, the central bank has effectively banned crypto activities. The court scheduled to hear the case again on coming Tuesday.
In the meantime, the Indian government is still deliberating on the draft bill. The bill seeks to ban cryptocurrencies, except state-issued ones. The bill was not presented in parliament. But the government said it would be the end of last year.
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