Reserve Bank of India vs cryptocurrency: RBI cites Libra as point against crypto
Cryptocurrency's future in India is up for debate as the Indian supreme court hears arguments.
- The Reserve Bank of India (RBI) imposed a ring-fencing on cryptocurrency exchanges in mid-2018. This severed the gateways between the Indian rupee and cryptocurrency, and spelled doom for many cryptocurrency businesses, but it wasn't an outright ban per se.
- A consortium of cryptocurrency businesses, helmed by India's CoinRecoil exchange, quickly lawyered up to argue that the ring-fencing unconstitutionally violated their freedom of commerce. The case against the RBI went to India's Supreme Court.
- A state of confusion reigned, and no one seemed sure whether or not cryptocurrency was banned in India. It was sufficiently confusing that even the Law Commission of India described the ring-fencing as a "cryptocurrency ban", causing everyone to check their notes and say "wait, what?"
- The case dragged on and on and on, with reschedulings and delays of all kinds. In late 2018 cryptocurrency exchanges got impatient and started loop-holing their way around the ring-fence, occasionally being arrested for their efforts.
- In mid-2019, an Indian inter-ministerial committee recommended imprisoning cryptocurrency users. The recommendation may not have gone anywhere, but it was definitely a "wow" moment.
- And now, finally, the supreme court is hearing the case, with the Internet and Mobile Association of India (IAMAI) and RBI and arguing it out for the last several days.
Court is in session
The nutshell version of IAMAI's arguments is that cryptocurrency is good, blockchain is good and cryptocurrency is essential for blockchain. The RBI's rebuttal orients largely around arguments that cryptocurrency is not safe, it is not necessary for blockchain and that the RBI has a responsibility to ensure the safety of the national currency and its users.
The RBI has said it has the sole right to operate currency and credit system in the Country. It has exercised its right (Banking Ban) to secure the monetary stability. It also says, that RBI regulated entities were exposed to "reputational risks" by offering service to exchanges.
— Naimish Sanghvi (@ThatNaimish) January 15, 2020
It also reiterated that the ring-fencing was not a ban, and that it was a proportional and sensible response to the risks posed by cryptocurrency. An RBI's affidavit reportedly filed last year in response to the IAMAI's claims, says:
"The RBI has not prohibited VCs (virtual currencies) in the country. The RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs… The RBI has been able to ringfence the entities regulated by it from being involved in activities that pose reputational and financial risks along with other legal and operational risks."
In particular, sources also say the RBI (indirectly) cited the quick US crackdown on Facebook's Libra stablecoin (which was also roundly opposed by most European central banks), as an example of the many risks the world perceives in cryptocurrencies.
Libra was the catalyst for many countries to start exploring central bank digital currency (CBDC), but India announced its exploration of CBDC before Libra's reveal. While the general sentiment is that the IAMAI vs RBI case will go well for crypto, the near-universal central bank opposition to Libra remains an abject lesson.
Disclosure: The author holds BNB, BTC at the time of writing.