No, India did not ban cryptocurrency. The truth is more interesting
India's tightening cryptocurrency laws seem to be paving the way for a national Indian digital currency.
It's being widely reported (again) that India has just banned cryptocurrencies. This is an oversimplification. The original announcement from India's Reserve Bank (RBI) can be found here, more clearly laying out the situation.
Firstly it's not an outright ban, although it's a strong step towards one. The exact words are:
"With immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs [virtual currencies]. Regulated entities which already provide such services shall exit the relationship within a specified time [3 months]."
What it means
Banks and other RBI-regulated entities cannot start offering digital currency services, although those which already do – such as crypto to fiat exchanges – will have three months to stop. This has naturally sent prices plummeting across Indian crypto to fiat exchanges as people cash out while they can.
The RBI describes this as a "ring-fencing," to essentially brick up the doorways between the Indian rupee and cryptocurrencies.
However, non-RBI regulated entities can still perform crypto to fiat conversions. Unregulated platforms like LocalBitcoins, and perhaps other cash-in-hand cryptocurrency services, might still continue operating under these regulations.
It's a major crackdown, but it's not an outright ban. The three month timeframe is also significant in line with some of the other, more overlooked, parts of the press release.
India is investigating a national digital currency
"Rapid changes in the landscape of the payments industry along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money have led central banks around the world to explore the option of introducing fiat digital currencies," the press release reads.
"While many central banks are still engaged in the debate, an interdepartmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency. The Report will be submitted by end-June 2018."
According to this plan, it looks like India will have some kind of answer regarding whether or not it will pursue a national central bank cryptocurrency before the end of June. This is before the hard crypto crackdown actually takes effect. With these kinds of potential developments in the wings, it's clear that the situation is still up in the air and that it's too soon to declare cryptocurrency dead and buried in India.
Will an Indian central bank cryptocurrency happen?
It's not possible to say with certainty. Other countries have previously investigated national cryptocurrencies and been put off by its hazards and it's possible that the RBI will reach the same conclusion.
However, India might also be more likely to go the other way. Firstly, it's wrangling with major financial inclusion problems, and in this announcement and others, the RBI has clearly recognised the incredible potential of digital currencies as a tool for more easily and efficiently fostering financial inclusion. Other countries in similar positions are experiencing a technological leapfrogging effect, as underbanked citizens move directly to mobile payment apps, and often digital currencies too, bypassing banks and bank accounts entirely.
Even if it's not ideal, migrating one's citizenry to a national digital currency might be the lesser of two evils. Cryptocurrency has been booming in India and the last thing any country wants is its entire population over-exposed to the volatility and financial risks of cryptocurrency. This ring-fencing might be an effective way of easing cryptocurrencies into the background while the RBI lays out a plan for an Indian national digital currency.
India would probably be one of the more likely ones to do so. Not only because the circumstances are right, but also because it has been much more focused on national blockchain systems than just about any other country. A central bank digital currency would be a natural part of the modern India.
Other parts of the press release also suggest a re-consolidation of digital finances within the country.
"It is observed that at present only certain payment system operators and their outsourcing partners store the payment system data either partly or completely in the country. In order to have unfettered access to all payment data for supervisory purposes, it has been decided that all payment system operators will ensure that data related to payment systems operated by them are stored only inside the country within a period of 6 months. Detailed instructions will be issued in this regard within one week."
This is kind of an overlooked big deal. Within 6 months, all digital wallet operators and their partners will be required to store payment system data in India, to a certain extent, to ensure that authorities are able to more effectively oversee it. If someone was anticipating widespread uptake of digital currencies within the next year, and wanted to ensure it could be done in line with AML/CTF laws, this is probably exactly what someone would want to do.
India did not ban cryptocurrency. It simply closed off many of the ties between fiat and crypto. Anyone in India who really wants to buy and sell cryptocurrency can still do it, especially for at least the next three months.
Plus, simply characterising the RBI announcement as a cryptocurrency ban is missing the much more important big picture, which is India's investigation of a national digital currency, and its broader moves towards becoming a much more financially and technologically connected nation, all of which are happening incredibly fast.
It looks like by the end of 2018 things will be very different around India, regardless of how much less convenient it is to buy bitcoin there.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, XRB
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