The Supreme Court quashed on Wednesday the central bank’s prohibition on cryptocurrencies.
The judgment came in a case filed by the Internet and Mobile Association of India (IAMAI) against the Reserve Bank of India (RBI) challenging the banking regulator’s un-consulted ad-hoc stand against cryptocurrencies, also known as virtual currencies.
In April 2018, the RBI had said that though technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system, there were concerns over consumer protection, market integrity and money laundering when it came to virtual currencies.
In a notification on April 6, 2018, the RBI said that in view of the associated risks (with cryptocurrencies), it had decided that entities regulated by it would not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling virtual currencies.
Such services included 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 the purchase/sale of cryptocurrencies.
“Regulated entities which already provide such services shall exit the relationship within three months from the date of circular,” the RBI notification further ordered.
Later, on April 10, in its first bi-monthly monetary policy statement for FY19, the central bank said that it had repeatedly cautioned users, holders, and traders of virtual currencies, including Bitcoins, regarding various risks in dealing with such virtual currencies.
The RBI had separately explained that its rationale to impose the prohibition was to ring-fence the RBI-regulated entities from the risk of dealing in virtual currencies.
According to a leading legal news portal, Bar and Bench, the Supreme Court judgment, rendered by a bench comprising Justices Rohinton Nariman, S. Ravindra Bhat and V. Ramasubramanian, was allowed on the ground of proportionality.
In its report on the subject, Bar and Bench explained that according to the petitioners (IAMAI) crypto currencies are like commodity and not currency, as the name suggests. And hence the RBI ought to have treated it like commodity. IAMAI counsels had also contended that cryptocurrencies are like “casino chips” and not actual currency.