SC overturns RBI ban on cryptocurrency

The Supreme Court allowed banks to handle cryptocurrency transactions from exchanges and traders, overturning a RBI ban that dealt the thriving industry a major blow.

The Reserve Bank of India had in April 2018 ordered financial institutions to break off all ties with individuals or businesses dealing in virtual currency such as Bitcoin within three months.

The ban led to plummeting trade volumes and exchanges shutting their businesses.

A three-judge Supreme Court bench said in their ruling that while the central bank had the power to take pre-emptive action, the court questioned the “proportionality” of such measures.

“RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none,” the court said in a 180-page ruling.

Nischal Shetty, chief executive of the WazirX cryptocurrency exchange, welcomed the ruling saying investment had stopped “in the crypto and blockchain space in India”, but that would now change.

However, the industry still faces hurdles as a government panel has recommended a ban on all private cryptocurrencies.

In July, the panel also recommended jail of up to 10 years and heavy fines for anyone dealing in digital currencies. The government has yet to act on those recommendations or to finalise regulations around cryptocurrencies.

The government and central bank have repeatedly warned the public about the risk of cryptocurrencies.

If the government were to follow the panel’s recommendations, it could signal the end of digital currencies in India.

Governments around the world have been looking into ways to regulate cryptocurrencies but no major economy has taken the drastic step of placing a blanket ban on owning them, even though concern has been raised about the misuse of consumer data and its possible impact on the financial system.

The need for regulations surrounding digital currencies has also gained momentum after Facebook announced plans to launch its cryptocurrency, Libra.

Several central banks around the world are also considering issuing their own digital currencies in the next few years, the Bank for International Settlements said in a report in January.

India’s government-appointed committee had also recommended considering the launch of an officially backed digital currency for use in the country, which can function like bank notes and be regulated by the central bank.

Facebook will revamp its plans for digital currencies amid regulatory scrutiny, The Information reported on Tuesday.

The company will offer digital versions of government-backed currencies including the dollar and euro, as well as its proposed Libra currency, when it launches its digital wallet, the report added, citing people familiar with the matter.

A Facebook spokesman confirmed to Reuters that the company was working on digital versions of government backed currencies and said it was still planning to offer the proposed Libra token as well.

Facebook announced in June last year a plan to launch Libra in partnership with other members of the Libra association, but the project quickly ran into trouble with sceptical regulators around the world.

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