Supreme Court upholds RBI’s ban on Virtual Currencies
On April 5, 2018, the RBI announced that entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in settling virtual currencies. The bank gave three months time to entities that have already provided such services, to exit the relationship.
The Supreme Court on July 3, 2018 refused to put a stay on the Reserve Bank of India (RBI) circular prohibiting banks and financial institutions from dealing in virtual currencies, thus upholding the ban on the virtual currencies such as Bitcoin.
With this ruling, all virtual currency transactions through banks would be blocked with effect from July 6, 2018, thus, resulting in a ban.
Highlights of the hearing
• A bench comprising Chief Justice Dipak Misra and Justices A.M. Khanwilkar and D.Y. Chandrachud was hearing a petition filed by the Internet and Mobile Association of India (IAMAI).
• The petition challenged the RBI circular that prohibited banking services for dealing in virtual currencies, while giving three months time to banks to settle their accounts with such entities or customers.
• Counsel appearing for IAMAI, CA Sundaram sought an extension of the three-months time period given to banks to close the accounts dealing with cryptocurrencies, as the move would be beyond repair and would result in a demonetisation-like situation for customers.
• On the contrary, counsel appearing for RBI, VP Singh objected to the reference to demonetisation and claimed that cryptocurrency was never legal tender.
RBI has repeatedly through its public notices on December 24, 2013; February 1, 2017; and December 5, 2017, cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.
Recently, on April 5, 2018, the RBI announced that entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in settling virtual currencies. The bank gave three months time to entities that have already provided such services, to exit the relationship.
The RBI restriction on the virtual currencies will be applicable from July 6, 2018 as envisaged in the circular. This will be a big blow to not only cryptocurrency trading platforms, but also for individuals holding cryptocurrency.
The blocking of banking channels dealing with cryptocurrency would imply that cryptocurrency-related transactions will thereon be done in cash or not at all. Zebpay, one of the biggest digital crypto-exchanges in India, has already asked its clients to withdraw their funds before the deadline expires.
About Cryptocurrency or Virtual Currency
• A cryptocurrency is a kind of virtual money that uses cryptography, a complex process of encoding data, to keep transactions secure from outside parties — like foreign governments looking to impose sanctions.
• These currencies operate independently and are immune from government interference or manipulation.
• The decentralised control of each cryptocurrency works through a blockchain, which is a public transaction database, functioning as a distributed ledger.
• Bitcoin, created in 2009, was the first decentralised cryptocurrency. Since then, over 1800 cryptocurrencies have been created.
Indian government's take on cryptocurrency
Indian government has frequently cautioned the people against cryptocurrencies, stating that cryptocurrencies or virtual currencies are not backed by assets and pose risks such as money laundering. Indian Government does not consider cryptocurrencies to be legal tender.
A committee under the chairmanship of Secretary, Department of Economic Affairs, is deliberating over all issues related to cryptocurrencies to propose specific actions to be taken.
Bitcoin and other cryptocurrencies have come under the scanner of Indian Government as their soaring prices attracted several speculators and retail investors. Seeing the increase in cryptocurrency investments and their uncertainty, various countries including South Korea have reiterated their proposal to ban local cryptocurrency exchanges.