The Reserve Bank of India (RBI) on Monday came out with an important clarification on cryptocurrency trade. The central bank said that banks cannot refer to its April 2018 circular to caution their customers against trading in cryptocurrencies.
The central bank said such references to its earlier circular by banks are “not in order” as it was set aside by the Supreme Court on March 4, 2020.
“As such, in view of the order of the Hon’ble Supreme Court, the circular is no longer valid from the date of the Supreme Court judgement, and therefore cannot be cited or quoted from,” the RBI statement said.
Though the central bank’s statement is objective, it does give an indication that the stance towards cryptocurrencies is softening in India.
It comes at a crucial time as the government is in process of framing rules to either ban or regulate cryptocurrency trade in the country; the latter option is a preferred choice of most crypto traders and exchanges operating in the country.
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RBI’s clarification will directly help crypto exchanges that have been facing a lot of bottlenecks in their negotiations with banks. Nischal Shetty, founder and CEO, WazirX, had recently told IndiaToday.in about banking hurdles with respect to crypto trade.
Nischal Shetty has welcomed RBI’s statement and said it is a positive development for the entire crypto sector in India. He said banks will now have more clarity in dealing with crypto exchanges.
On Twitter, Shetty said, “It’s amazing to see RBI clarifying and helping solve uncertainty for Crypto in India. There are over 1.5 crore Indians in Crypto. This news has brought joy and confidence to everyone in the sector. Let’s continue to build the Indian crypto ecosystem.
WHY RBI’S CLARIFICATION IS IMPORTANT
The RBI also asked banks and other regulated entities to carry out customer due diligence processes in line with regulations governing “standards for KYC, anti-money laundering, combating of financial terrorism and obligations of regulated entities under PMLA, 2020 in addition to ensuring compliance with relevant provisions under FEMA for overseas remittances”.
This, too, is a welcome move according to WazirX’s Nischal Shetty as all exchanges providing cryptocurrency trade services to customers are up to date with all regulations.
RBI’s statement is important as it is another indication that the government is looking to soften its stance on cryptocurrency trade and go for regulation rather than a ban. A few days ago, a report indicated that the government is planning to set up a new expert committee to re-examine all aspects of crypto trade.
An earlier committee headed by former finance secretary Subhash Garg in 2019 recommended a blanket ban on cryptocurrency trade. However, many within the government now feel that the suggestions of the committee have become “outdated”.
Given the recent developments, many crypto investors and exchanges feel that the government may not go for an outright ban on virtual coin trade in the country.
Earlier in March, the Ministry of Corporate Affairs (MCA) had asked companies to declare their cryptocurrency investments and was viewed as another indication that the government may consider the option to regulate cryptocurrency trade. Even Finance Minister Nirmala Sitharaman had earlier told India Today that the government will not shut all options on cryptocurrencies.
WILL CRYPTOCURRENCY TRADE BE LEGITIMISED IN INDIA?
Combining all these developments with the growing popularity of cryptocurrency trade in India, it is a high possibility. Regulating virtual coin trade instead of a complete ban could be the preferred choice of the government in view of the evolving circumstances.
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A Business Standard report quoting sources in the RBI said allowing banks to carry out due diligence for crypto investors and users amounts to “legitimising trading in the country”.
“They could have stopped after the first paragraph which said the April circular is no longer valid. But RBI went on to permit banks to carry out due diligence for crypto customers like any other legitimate activities that are allowed for the banks,” a source quoted in the report said.
After the RBI’s statement, people from the crypto domain say the central bank has cleared its stance on virtual coins and this will help make the industry stronger.
They also said that the cryptocurrency sector now needs a concrete set of guidelines from the government that will help in better regulation. For instance, there is a regulatory framework needed for taxing cryptos.
While creating a solid framework for cryptos will need more time, RBI’s clarification is a big step in that direction.