The Reserve Bank of India has introduced a blanket ban on businesses dealing with virtual currencies, but has also started to explore the possibility of a ‘Central Bank Digital Currency.’
The regulation is just another move in the global crypto crackdown, but stands in contrast to the lenient measures of other large nations like US, Japan, and South Korea. Such a firm stance stance hasn’t been seen since the China ban. The statement reads:
“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 virtual currencies. 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 ban, which was ostensibly made to protect investors from “the associated risks” of cryptocurrencies, is the latest measure in a string of regulations issued by Indian banks.
Over the last few months institutions including the State Bank of India, HDFC Bank, and Citibank have tightened regulations and transactions relating to cryptocurrency, but this might be the final nail in the coffin, with all banks now given three months to settle their scores with businesses and consumers that deal with cryptocurrency.
This regulatory clampdown has gradually suffocated the Indian cryptocurrency market, with a general decline in interest mirroring the drop in price we have seen since the end of 2017. Reports indicate that cryptocurrency trade in the country had declined by almost 90% at the end of March.
Although the ban does not prohibit citizens from owning or trading cryptocurrencies, it makes it much more difficult to realize any fiat returns within the country. Avid crypto enthusiasts will likely continue to find ways to work with digital assets via offshore entities, in an age of VPNs (and the virtual inevitability of a more decentralized Internet), but with the potential taxable benefits to the nation of India now removed from the equation.
Nevertheless, the remaining hodlers have shown their passion with a petition that was launched shortly after news of the ban hit. It reads:
“Crypto and blockchain as a concept can’t be stopped. You can just decide whether you want to participate with full throttle or get left behind. The current stance from the government shows they would want to remain left behind after missing the internet revolution first, AI revolution next and now blockchain revolution.”
The sentiment was also voiced by Nischal Shetty, CEO and founder of Indian Bitcoin exchange WazirX:
US, Japan, South Korea go towards regulating Cryptos so that their country progresses while RBI decides to block Indians from getting involved in the crypto revolution. We need to think progressively, @RBI please reconsider this and let’s take a positive step forward ??
— Nischal (WazirX) (@NischalShetty) April 5, 2018
The tweet, issued hours after the RBI statement, was expanded on in a Medium post in which Nischal warned that a “knee-jerk” reaction will mean India misses a “golden opportunity” setting the country back as “the rest of the world moves ahead”.
Others, like the founder of Coincrunch Naimish Sanghvi, warned of the potential of strict regulation to force cryptocurrency trading into the shadows of the web. Since the China ban, cryptocurrency trading has persisted in the country, but has moved to OTC trading or on to the darknet.
With one hand the RBI is pushing crypto down, but the other is raising blockchain up: In addition to the ban, a separate statement was issued lauding the potential of technological innovations like virtual currencies to improve the “efficiency and inclusiveness of the financial system”. This echoes the sentiments of financial institutions and governments worldwide: Bitcoin bad, blockchain good. The general consensus within these entities appears to be that control over blockchain technology is necessary to preserve national sovereignty (or, in the case of private enterprises, market share).
The reserve bank is reported to have formed an inter-departmental group to explore the possibility of introducing a central bank digital currency, an update on which is expected by the end of June 2018.