Virtual currencies (that includes cryptocurrencies) are suddenly back in the limelight with the global frenzy around non-fungible tokens and crypto prices hitting the roof.
Overview and recent developments
The Reserve Bank of India (“RBI”) has been attempting to regulate digital currencies in India since 2013 constantly cautioning users against the risks. In April 2018, the RBI issued a notification (“2018 Notification”) prohibiting dealing with virtual currencies and decided that entities regulated by RBI should not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling virtual currencies. The apex court set this aside in March 2021 on the grounds that such a ban is unconstitutional.
In 2019, a bill Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 was introduced in the parliament for the ban on cryptocurrency in India and the same is pending. Further, the parliament is proposing introduction of the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 that seeks to prohibit all private cryptocurrencies and its uses.2 Banks, however, have mixed approaches to the legality of virtual currencies in India and have gone back and forth on many issues3. The RBI, on May 31, 20214 clarified that though the provisions of the 2018 Notification have been overridden by the Supreme Court, caution must still be exercised when dealing with virtual currencies.
It is evident that RBI has concerns on the effect of crypto trading on the country’s financial stability. This has also been expressed in the RBI’s latest monetary policy in June 2021. One would have to wait and watch to see how the crypto conundrum plays out.