The Reserve Bank of India (RBI), India’s central bank, has admitted that it did not undertake a thorough enough research of cryptocurrencies before issuing its ban earlier this year, writes Bitcoin.com.
This was the bank’s response to a Right to Information query filed by an Indian blockchain lawyer, which has since been distributed to news outlets.
All financial institutions were instructed to cease cryptocurrency business across the sub-continent on 5 April and were given three months to comply. The move, like others in various countries attempting to legislate cryptocurrency, was designed to prevent money laundering and to protect consumers. RBI gave banks and financial institutions notice that it would put a working party into place to look at the feasibility of issuing a state-backed cryptocurrency.
It appears that RBI did not study the nature, principles, and usage of cryptocurrencies before issuing the ban, and no committee was formed for this purpose prior to the ban. The ban has since been challenged in the Supreme Court, seeing some investors moving their business overseas.
The Supreme Court challenge was put in place partly due to a petition supporting blockchain that gained 17,000 signatures, largely driven by younger users employed in the industry, citing youth unemployment as a major concern.
The initial two writ petitions filed in public interest with the Supreme Court are still pending but will decide the legal status of cryptocurrencies in India. They are representative of the enormous public outcry against RBI’s dictum, as the population of India is both highly aware and active in the cryptocurrency market.
According to Kunal Barchha, co-founder and director of the company behind the upcoming crypto exchange Coinrecoil, the author of the query is Varun Sethi, an Indian blockchain lawyer.
Sethi’s questions to the RBI focused on why a body or panel of inquiry hadn’t been formed to investigate and research any extant cryptocurrency risks prior to the bank’s ban, and no foreign sources had been contacted to gain further information about the technology.
The bank’s response was that it “was a member of the Inter-Disciplinary Committee constituted by the Finance Ministry and the Indian government in March 2017, to examine the status of virtual currencies and suggest regulations”.
Although central banks do have authority to ban or restrict commercial banks from a certain industry when it is declared as completely illegal, this was not the case regarding the decision, said Barchha.
“In the case of Bitcoin or cryptocurrencies, that process is completely missing, as the government of India has not yet declared cryptocurrencies illegal and so we have challenged the RBI’s circular,” he explained.
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