According to a new policy document entitled “Statement on Developmental and Regulatory Policies”, the Reserve Bank of India has officially moved to cull support for both persons or businesses that deal in cryptocurrencies.
While the statement does not necessarily mark the beginning of a ban, it does indicate a tougher stance on the acceptance and use of cryptocurrencies within the nation. Previously, India’s Finance Ministry has limited the functionality of cryptocurrency exchange accounts after criticizing Bitcoin and cryptocurrencies for having a ‘lack of basic utility’.
Specifically, the Reserve Bank writes 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 VCs. Regulated entities which already provide such services shall exit the relationship within a specified time.”
According to local reports, businesses have as little as three months to sever all cryptocurrency-related operations.
The move comes into play amidst concerns with cryptocurrency’s interoperability with anti-money laundering measures – the Reserve Bank writes that “Internationally, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control. And if they grow beyond a critical size, they can endanger financial stability as well.”
A state-backed digital currency
Notably, the Reserve Bank of India’s official statements are joined by confirmation that the regulator will proceed to develop a state-backed cryptocurrency.
Elaborating on its interest in digital currencies and their underlying foundation, the Reserve Bank noted interest in the “rapid changes in the landscape of the payments industry along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money.”
Echoes from around the world
The Reserve Bank of India’s broader strategy cuts similar parallels to the initial play by Chinese regulators, which have both now taken steps to restrain capital flight by roadblocking support for local exchanges and, in the case of China, preventing access to offshore cryptocurrency exchanges and Initial Coin Offering (ICO) websites.
5/ The Indian government remains worried about capital flight, much like the Chinese government. The Indian government, however, has Big Brother – @UIDAI and can tell people who want to trade and invest legally that all wallets/accounts/etc must me linked to #Aadhaar.
— Pankaj Jain (@pjain) April 5, 2018
The Reserve Bank of India’s strategy might well force cryptocurrency investors and exchanges to resort to ‘Over the Counter’ (OTC) methods of trade – a trend Chinese investors followed earlier this year.
It remains to be seen whether a three-month stopgap will provide Indian cryptocurrency exchanges with enough time to pivot into compliance with the Reserve Bank’s latest statements.