“We haven’t received a notice from our banks; we don’t know whether we have one week or three months.”
Shubham Yadav, co-founder of cryptocurrency exchange Coindelta, is talking about the grave uncertainty that is his future. On Friday, the Reserve Bank of India (RBI) released a circular which notes the provisions of law under which it can prohibit banks and financial institutions from dealing with cryptocurrency businesses. Yadav, and others like him, are now planning ahead.
“We plan to move our office outside of India and from there we will operate in the country. Also, we are looking for alternate ways by which people can still buy cryptocurrency using Rupee by bypassing the RBI’s directive. There are a couple of business models we are looking into and we are working on that,” he says.
Certain that crypto trade is no longer a lucrative option in India, Yadav explains, “There is now a blockade for customers who would want to trade in crypto to crypto pairs.”
So, is this the end for cryptocurrency exchanges?
In its first bi-monthly monetary policy announcement for this financial year, the central bank gave a shocker to the Indian crypto community. It stated that it will be prohibiting banks and financial institutions regulated by it from dealing with virtual currencies.
As per the circular, RBI governed entities cannot engage in services like maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them, and the transfer/receipt of money in accounts relating to purchase/sale of VCs.
This means that all legit modes of trading Rupee for cryptocurrencies are now shut and all the exchanges have been completely excluded from the country’s financial system.
“In his Union Budget speech, Finance Minister Arun Jaitley clearly said that virtual currencies are not legal tender. It is a fallout of that decision of the government that this move has come from the Reserve Bank,” says former RBI Deputy Governor R Gandhi.
RBI has traditionally prevented banks from interacting with anything that has a volatile valuation, he says. “For virtual currencies, because of its wild price movement, the Reserve Bank has come to this conclusion. That’s my understanding,” he adds.
There are over two dozen cryptocurrency exchanges in India, with some that were preparing to launch. Around 5 million people trade (or have invested) in them. And while governments across the world are regulating businesses based on cryptocurrencies, RBI took a measure so drastic that it could mean the end of an entire industry. In this light, it becomes important to understand what the central bank is trying to achieve here, what repercussions this will have, and whether this was the best way to go about it.
Demonetisation – A sequel
Citing concerns of “consumer protection, market integrity and money laundering”, the RBI made this move to cut off the crypto industry from India’s formal payment network.