The Supreme Court of India overturned a circular (the VC Circular) issued by India’s central bank, the Reserve Bank of India (RBI), on constitutional grounds on March 4, 2020, which banned the use of regulated banking and payment channels for the selling and purchase of virtual currency (the IAMAI case). 3 This reaffirmed the fundamental freedom of virtual currency exchanges to trade and do business, as provided by the Indian Constitution.
Money laundering, consumer protection, market integrity, cybersecurity, and volatility have all been mentioned as hazards connected with virtual currencies by the RBI and the Ministry of Finance in the past. However, certain advantages of virtual currencies, such as efficiency and cost savings, have been highlighted in numerous government committee studies
The apex court stated, “It is not possible for us to hold that the impugned measure is proportionate when the RBI’s consistent position is that they have not banned VCs and when the government of India is unable to take a call despite several committees coming up with several proposals, including two draught bills, both of which advocated exactly opposite positions.”
The SC stated, “The current position is that VCs are not illegal, but the challenged Circular has rendered VC trading and the functioning of VC exchanges comatose by cutting off their lifeline, namely, the interaction with the conventional banking sector.” Worse, it was done I despite the RBI finding no flaws in the way these exchanges operate and (ii) despite the fact that venture capitalists are not prohibited.
In an April 2018 announcement, the RBI stated: “We’ve now decided to protect RBI-regulated firms from the risk of interacting with virtual currency entities. They must immediately cease doing business with organisations that trade in virtual currencies and unravel any existing relationships within three months. Consumer protection, market integrity, and money laundering are among the problems raised by virtual currencies, often known as cryptocurrencies and crypto assets.” The RBI circular was challenged in the Supreme Court by the Internet and Mobile Association of India (IAMAI) and a few other stakeholders.
The finance ministry then published a formal press release on December 29, 2017, warning people about “virtual currencies” (VCs). “VCs are not backed by government fiat,” it added, adding that they are also not legal currency or even currencies in the true sense, despite the fact that they are termed “coins.” According to the press release, venture capitalists have “no inherent value and are not supported by any form of assets,” their prices are “completely a question of mere speculation,” and there is a “real and heightened risk of investment bubble of the type observed in Ponzi schemes.” The ministry has compared crypto-currency to Ponzi schemes and cautioned people not to get caught up in them, noting that digital currencies are frequently utilised for disruptive activities like as drug and terror financing. “VCs do not have any regulatory authority or protection in India,” it added emphatically, adding customers should deal with them at their own risk. This warning was made after the company asked for public input on the future of Bitcoins on its MyGov platform in May 2017. Thousands of people are queuing up every day to register with crypto exchanges, despite this explicit warning and at least three previous warnings from the RBI, once in 2013 and twice in 2017. Zebpay, Unocoin, GlobalDCX, CoinSecure, and BtcxIndia are the only five such exchanges functioning in India (in Delhi, Mumbai, Pune, Bengaluru, and Hyderabad).
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