The Supreme Court has quashed an earlier order of the RBI on the use of cryptocurrencies such as Bitcoin. While the Reserve Bank of India had earlier directed banks to not deal with cryptocurrencies, the apex court has set aside the order, allowing trade in digital assets, agencies reported. Supreme Court’s move is expected to bring relief to many vendors who wanted to facilitate banking transactions for cryptocurrencies exchange and trading. In a circular in April 2018, RBI had imposed a virtual ban on cryptocurrency trading in India and had directed all entities which fall under the purview of RBI to not deal in virtual currencies or provide services to those who want to deal in it.
India is not the only country sceptical about the use of cryptocurrencies. While nations such as the United States have said that there is a need to regulate virtual currencies, countries including Bolivia, Colombia, Canada and Ecuador, have imposed bans on cryptocurrencies as well. The major concern about cryptocurrencies remains that it isn’t clear under which category should these be placed. “Should it be regulated like a currency or a commodity or security like a share, remains unclear,” Sanjay Khan Nagra, Partner, Khaitan & Co, told Financial Express Online. He added that RBI’s reason to impose a ban on cryptocurrencies was not unfounded as economies around the globe aren’t sure about how cryptocurrencies work.
Why RBI is sceptical about virtual currency
While the primary basis of our economy is that currency is centrally regulated, cryptocurrencies do not fall under the ambit and risks remain of “cross border money laundering, arms dealing and drugs trade since it is a global currency,” Sanjay Khan Nagra said. Further, unlike the regular currency, cryptocurrencies are extremely difficult to trace. RBI’s ban curbed the usage of digital currencies in India to a large extent, however, people have still found a way to deal in it, he added.
RBI had earlier issued circulars to users, holders and traders of virtual currencies and cautioned them about the risks associated with the use of digital currencies such as Bitcoins. The same circular was later challenged in the Supreme Court. Bitcoin, which is one of the most popular cryptocurrencies has gained by almost half so far this year. Other virtual currencies have also fared well with Ethereum more than doubled, and Ripple’s XRP up over 75%.