]In a fresh new twist, the Reserve Bank of India (RBI) has admitted to issuing its ban on cryptocurrency-related accounts spontaneously, without taking time to study and understand how cryptocurrencies work.
In reply to a Right to Information query filed by a local lawyer with the Twitter handle Blockchainlaw91, the bank revealed that its decision to ban cryptocurrency-related accounts in the country was made without due consultation or study.
How It Started
India’s central bank, the Reserve Bank of India, started warning its citizens against the dangers of investing in cryptocurrencies in 2013, which was followed by two other warnings in 2017, before coming down hard on the industry earlier this year.
On April 5, 2018, RBI published an announcement, stating that it was banning the country’s banks from dealing with any business or “entities dealing with or settling [virtual currencies].”
RBI Deputy Governor B.P. Kanungo who spoke to reporters said there was a three-month grace period for businesses providing such services to wind down operations.
The bank said the move was motivated by the need to protect Indian customers and prevent money laundering.
In 2017, prior to the ban, the Indian government had formed a committee, which included the RBI, with the aim of studying virtual currencies and how they work.
The committee had suggested banning cryptocurrency exchanges in the country, but the surging price of bitcoin toward the end of the year led to a quick reversal of that position and the creation of a new panel to study cryptocurrencies.
Surprisingly, in its reply to Blockchainlaw91’s query, the Reserve Bank of India revealed that its decision to ban the bank’s activities with crypto-based businesses was not backed up by any independent study or research.
Petitions and Migration
The Internet and Mobile Association of India (IAMAI) — which includes Indian crypto exchange Zebpay — have filed a writ petition to overturn RBI’s ban which prohibits banks from dealing with crypto-based businesses. The case is currently at the Supreme Court with a hearing date fixed for July 20.
Since the ban on crypto, there have been claims that blockchain businesses could be forced overseas.
Joel John, a research analyst at a U.K.-based blockchain company who spoke with the local media, believes crypto companies can easily migrate to friendlier countries to set up new entities. He said: “Companies moving abroad is not a new trend, but the regulatory complexities faced by blockchain companies have accelerated it.”
It is gradually becoming a pattern for governments to make spontaneous decisions on cryptocurrency without first seeking to understand how it works. Russia and Japan have each tried to ban crypto businesses before ultimately softening their stances.
Jimmy has been following the development of blockchain for several years, and he is optimistic about its potential to democratize the financial system.