• HDFC
• 20 Apr 2018
• Knowledge Centre

HDFC, Tester

RBI tolled the death knell for Indian players in the virtual currencies business by issuing an order banning it in April this year.

 

The RBI order specified that entities regulated by the central bank should not carry out transactions involving the use of virtual currencies with individuals and businesses. The order stated that “In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies. Regulated entities which already provide such services shall exit the relationship within a specified time.”

 

RBI later specified a timeline of three months for the termination of all transactions and businesses involving cryptocurrencies. Earlier this year, the Government too had asserted that it would not allow the use of digital currencies, as they were an illegal mode of payment.

 

With daggers drawn

 

While some Indian players associated with cryptocurrencies are planning to shift their business overseas, others have taken a call to fight RBI’s order.

 

The option to move their business to another country is viewed by players as a measure to protect investors who want to hold on to and continue trading in cryptocurrencies. This would give investors the chance to use them in another country. According to estimates, a minimum of 40 to 50 lakh people in India holds cryptocurrencies. Of these, 60 percent entered the market between October and December 2017, when prices were very high.

 

As RBI toughens its stand, certain investors in the Bitcoin space have decided to HODL*.

 

*(Hold Your Cryptocurrency is a typo which means that persons holding a Bitcoin believe that despite the current plunge in prices, it will be profitable at some point in time).

 

Voices raised

 

RBI’s order has also been opposed via an online petition on Change.org, asking the central bank to withdraw its circular. Addressing the RBI and the Prime Minister of India, the petition has been filed under the name ‘Digital Asset Exchanges of India’.

 

It states that “Crypto and block chain as a concept can’t be stopped. You can just decide whether you want to participate with full throttle or get left behind. The current stance of the Government shows they would want to remain left behind after missing the internet revolution first, AI revolution next and now the block chain revolution.”

 

The response to this petition has been enormous, with signatures of supporters in lakhs.

 

India is not the only country to take a strong stance against the use of cryptocurrencies. Pakistan has also joined in the fray. The country’s central bank released a separate statement citing that cryptocurrencies were not legal in the country. The State Bank of Pakistan ordered banks and other financial services providers to turn down customers opting for cryptocurrency transactions.

 

While reactions to this ban have been mixed, it cannot be denied that while cryptocurrencies have certain advantages like cutting out the middleman, ensuring confidentiality, lower transaction costs and strong security, its advantages are proving to be its bane. This is owing to the fact that unregulated use of this tool was resulting in price manipulation, creating a free field for hackers and cybercriminals, excessive volatility in prices, and being used for illegal or banned transactions.