Four crypto exchanges in India have challenged the circular from the Reserve Bank of India (RBI), i.e. India’s central bank, denying them banking services, in the Supreme Court of India, the highest court in the country. The exchanges that have jointly filed the Writ Petition are Coindelta, Koinex, Throughbit, and CoinDCX.
Cryptocurrencies including Bitcoin aren’t considered as legal tenders in India. Both RBI and the Government of India (GoI) oppose cryptocurrencies. While their reasons for opposing cryptocurrencies are related to their respective domain, it’s to be noted that both have been consistent in opposing cryptocurrencies, while being very eager to explore blockchain, the underlying technology.
The reasons behind RBI‘s opposition to cryptocurrencies can be summarized as following:
- Cryptocurrencies are completely outside of any regulation, and entities dealing in them are fully exposed to the associated risks.
- Crypto assets are neither currencies, nor securities. They are just mathematical money, and aren’t backed by any tangible asset.
- Cryptocurrency market is highly speculative, bringing with them high possibility of financial losses for the traders.
GoI‘s opposition to cryptocurrencies are due to following broad reasons:
- Since their inception, the relative anonymity offered by cryptocurrencies have been abused by criminals, who have funded their illegal activities with cryptocurrencies including Bitcoin.
- There have been numerous incidents of money laundering using cryptocurrencies.
- With fights against corruption and terrorism being very high on GoI‘s priority, criminals and terrorists funding their activities using cryptocurrencies is a serious concern.
RBI had issued multiple warnings to the individuals and entities engaged in trading of cryptocurrencies, over multiple years. On February 2018, Union Finance Minister of GoI, Mr. Arun Jaitley, declared of the floor of the nation’s parliament that the government doesn’t recognize cryptocurrencies as legal tenders, and will take every step to prevent usage of these to fund criminal activities, and their entry into the payments system.
Concrete steps have followed, with the public sector unit (PSU) banks in India barring their customers from using credit and debit cards issued by the banks to buy cryptocurrencies, under order from RBI. There had been earlier complaints that the crypto exchanges haven’t paid the applicable taxes, and there have also been tax raids on some crypto exchanges. RBI has also ordered the regulated banks and payments institutions to stop providing banking and payment services to businesses dealing with cryptocurrencies.
While the writ petition has been listed for hearing in the Supreme Court, it remains to be seen whether the crypto exchanges will get any relief. Like other matured democracies, Indian Supreme Court is a constitutional court, and considering cryptocurrencies enjoy no legal status in the country, it will be interesting to see if the court will interfere with the functioning of RBI, another constitutional body whose job it is to formulate and oversee monetary policies.
At least for the foreseeable future, it doesn’t seem likely that cryptocurrencies will get any legal status in India. A democracy must respect public opinion, however, there isn’t any significant public opinion in India concerning cryptocurrencies, to make it imperative for the legislature to frame laws allowing cryptocurrencies. In this aspect India is quite different from South Korea, where cryptocurrencies enjoy high popularity, due to lack of high yield investment options. In January 2018, when the government in South Korea was mulling a complete ban on cryptocurrencies, overwhelming public opinion had compelled the government to soften its stance. At this moment that seems unlikely in India.
It’s to be noted that while the four exchanges in question are trying to reverse the RBI circular, a few other exchanges in India had understood the lack of viability of their business in the country, due to lack of recognition from RBI and GoI. It appears that they had correctly interpreted the stance of RBI and GoI opposing cryptocurrencies.