The Reserve Bank of India has justified its crypto banking ban to an industry group which has been trying to convince the central bank to ease crypto restrictions. In response, the central bank outlines key areas of concern and upholds its stance on crypto.
RBI’s Main Concerns
India’s central bank, the Reserve Bank of India (RBI), has divulged key areas of concern regarding cryptocurrency. The communication is in response to a representation submitted by the Internet and Mobile Association of India (IAMAI). The document was sent to the central bank during the Supreme Court hearing of IAMAI’s petition against the crypto banking ban.
While RBI’s response cannot be made public, some industry participants have seen it and have discussed its content.
A source who has seen the document told news.Bitcoin.com that RBI told IAMAI it is particularly concerned about investor protection, cryptocurrencies’ lack of intrinsic value, and their anonymity, which could lead to money laundering.
Sohail Merchant, CEO of crypto exchange Pocketbits, commented on RBI’s response, stating that “all the basis of their arguments is ‘Investor Protection’.”
Nischal Shetty, CEO of crypto exchange Wazirx, concurred. “Some of the arguments seem to be around investor protection,” he noted, adding that “but investor protection comes with regulation and not a ban!”
Other crypto exchanges also agree that a ban is not the way to protect investors. Praveen Kumar, CEO of crypto exchange Belfrics, was quoted by Quartz:
By limiting transactions via bank accounts and allowing more cash-related transactions, RBI is allowing more people to get duped…Instead, they need to regulate the exchanges and lay down guidelines that can help prevent these frauds.
In addition, the source shared with news.Bitcoin.com that, “exchanges have been hacked globally and that worries them.”
There has been a rise in crypto-related scams in India. Even BJP party leaders have been accused of being involved in a bitcoin scam. Recently, the Indian state of Maharashtra announced that it is setting up a special investigative unit to investigate all crypto-related cases.
No Intrinsic Value
The central bank is also concerned that “cryptos have no intrinsic value,” the source added.
RBI’s view reiterates the statement issued by the country’s finance ministry in December last year. Aimed at warning people of the risks of investing in cryptocurrencies, claiming that they are “like Ponzi schemes,” the statement reads:
VCs [virtual currencies] don’t have any intrinsic value and are not backed by any kind of assets. The price of bitcoin and other VCs therefore is entirely a matter of mere speculation resulting in spurt and volatility in their prices. There is a real and heightened risk of investment bubble of the type seen in ponzi schemes….
Anonymity of Crypto
The third major factor of concern for RBI is the “anonymity of crypto leading to money laundering,” the source noted.
However, exchanges argue that strict adherence to know-your-customer (KYC) norms would prevent money laundering, Quartz elaborated and quoted them clarifying, “all transactions are usually carried out via bank account transfers to keep a tab on the money trail.”
India is also not the only country concerned about the anonymity of crypto. Japan, where cryptocurrency is a legal means of payment, is another. The country’s top financial regulator has reportedly been pressuring exchanges such as Coincheck, which was hacked in January, to drop privacy coins.
What do you think of RBI’s concerns? Let us know in the comments section below.
Images courtesy of Shutterstock and the Indian government.
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