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SC frees trade in cryptocurrencies, annuls RBI curb

Topics Covered: Separation of powers between various organs dispute redressal mechanisms and institutions.

SC frees trade in cryptocurrencies, annuls RBI curb

What to study?

For Prelims: What are crypto currencies? SC’s order? What the RBI circular said?

For Mains: Implications and significance of this order, what is the way ahead for Virtual Currencies I’m India?

Context: The Supreme Court has set aside an April 6, 2018, circular of the Reserve Bank of India (RBI) that prohibited banks and entities regulated by it from providing services in relation to virtual currencies (VCs).

What did the Court say?

  1. RBI has not come out with a stand that any of the entities regulated by it namely, nationalised banks/scheduled commercial banks/cooperative banks/NBFCs, have suffered any loss or adverse effect directly or indirectly, on account of virtual currencies (VCs)
  2. Hence, the RBI circular is “disproportionate” with an otherwise consistent stand taken by the central bank that VCs were not prohibited in the country.
  3. Besides, the court found that the RBI did not consider the availability of alternatives before issuing the circular.
  4. Besides, the court referred to the Centre’s failure to introduce an official digital rupee despite two draft Bills and several committees.

Background:

The top court’s order followed a plea by the Internet and Mobile Association of India (IMAI) objecting to the RBI ban.

In April 2018, the central bank had tightened rules to discourage the use of virtual currencies such as Bitcoins, prohibiting banks and financial institutions from providing any related services.

Arguments by IMAI:

Cryptocurrency is not strictly currency and was more in the nature of commodity, and RBI does not have powers to impose such ban in the absence of a law in that regard prohibiting cryptocurrency. India should look at most other nations that are not only allowing cryptocurrency trading, but have moved to launch their own virtual currencies.

What RBI said?

  1. The RBI contended that it had, right from 2013, been cautioning users of cryptocurrencies and that it considers cryptocurrency a digital means of payment which has to be nipped in the bud so that the payment system in the country is not jeopardized. The regulator also argued that it is empowered to take decisions banning cryptocurrencies.
  2. That ban was aimed at “ring-fencing” the country’s financial system from the private virtual currencies, deemed illegal by the government.
  3. It had also argued that Bitcoin and other cryptocurrencies cannot be treated as currencies as they are not made of metal or exist in physical form, nor were they stamped by the government.

What are Cryptocurrencies?

Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.

Examples: Bitcoin, Ethereum etc.

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How is it being regulated worldwide?

While many regulators around the world have been warning against trading in Bitcoin, some have backed it. In 2017, Japan accepted Bitcoin as legal currency and even officially recognised exchanges dealing in the cryptocurrency.

Insta Link:

Prelims Link:

  1. Various cryptocurrencies.
  2. Cryptocurrencies launched by various countries.
  3. What is Blockchain technology?

Mains Link:

What are Cryptocurrencies? Why there is a need for regulation? Discuss.

Sources: the Hindu.