The Reserve Bank of India released a directive prohibiting banks from working with cryptocurrencies and bitcoin. A month ago, though, the country’s Supreme Court issued a mandate requiring that the government draft a cryptocurrency regulatory framework in four weeks. The draft laws would provide the country with guidelines in which they could operate.
On March 29, there will be a hearing that may uplift the ban and allow cryptocurrencies to operate merely within the framework itself. This may uplift impediments that individuals have when it comes to transacting with banks and other financial institutions.
Right now, bitcoin and ethereum can be used generally, just not in the financial sector and in relation to the central bank. For example, if a bank is working with the central bank, it cannot transact with cryptocurrency. This ultimately leaves a regulatory gray area for traders that buy or sell bitcoin in a traditional exchange or trading platforms that utilize cash, but that is not related to local banks.
One exchange, called Zebpay, issued a warning to customers on rupee withdrawals, stating:
“If Zebpay bank accounts are disrupted, rupee deposits and withdrawals will become impossible…[However] Crypto deposits and withdrawals are continuing as usual. The RBI circular only talks to banks, and other regulated entities about shutting accounts. This doesn’t affect BTC and other cryptos,” local exchange Zebpay said at the time.”
The platform also does not intend to cease offering crypto-to-crypto trading.
However, the exchange also clarified
“Our present intention is to allow crypto-INR pairs to trade even after our bank account is shut [down].”
Interestingly enough, the exchange’s position seemed to provide it with a boost – it’s trading volume increased, as well as that of other peer-to-peer exchanges.
This does not necessarily mean, however, that the country’s officials are not grappling with the issues. The central bank is pushing for a complete bank on cryptocurrency trading and it seems that there is agreement from government officials in general.
There is some push back though. Finance Secretary Subhash Chandra Garg of the Department of Economic Affairs may have decided to not completely designate cryptocurrency as a form of illegal payment. In an article released by New Indian Express, an anonymous committee member commented
“We have already had two meetings. There is a general consensus that cryptocurrency cannot be dismissed as completely illegal. It needs to be legalized with strong riders. Deliberations are on. We will have more clarity soon.”
The underlying problem that may be preventing cryptocurrencies and banking from working together is a fear of money laundering. The position is that cryptocurrency trading and move to peer-to-peer exchanges and these funds cannot be easily tracked and as a result, the proceeds can be used in an illegal manner.
Interesting, too, is that India is looking at Japan’s cryptocurrency regulatory framework as an example that it may want to follow. Recently, the country sent its officials to Japan to learn more about the framework, which is considered to be quite strict when it comes to verification of exchanges.