Cryptocurrency Transactions Banned to Uphold the Integrity of the Banking SystemTop Stories

January 24, 2020 18:24
Cryptocurrency Transactions Banned to Uphold the Integrity of the Banking System

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The Reserve Bank of India has defended the circular that it has been made in 2018 which was regarding the banks to desist from dealing in any transactions that involve cryptocurrency transaction, in the Supreme court on Wednesday.

Shyam Divan who is a senior advocate and who represented the Reserve Bank of India has argued that the warnings regarding the risks of dealing in the virtual currencies has been consistently been given by the central bank although there had been no formal ban on cryptocurrencies under any law.

The cryptocurrencies are the digital currencies that are operated independently of a central bank in which the generation of the currency units can be regulated through encryption techniques and the transfer of funds can be verified.

Shyam Divan said that the RBI circular of 2018 was a part of a conscious policy decision that has been made by the regulator in order to ensure that the banking systems was not being compromised by any other payment system that involves cryptocurrencies.

Justice RF Nariman has led the three- judge bench which is a hearing petitions that has been filed by the currency exchanges dealing with the bitcoins. Justice RF Nariman has lead the three- judge bench which also included Justices Anirudda Bose and V Ramasubramanian as a part of the three- judge bench before which Shyam Divan has argued.

In July 2018, the Supreme Court had refused to stay an RBI circular that has said that the provision of services in relation to cryptocurrencies has been prohibited by banks and financial institutions.

The Internet and Mobile Association of India (IAMAI) has filed a plea regarding the reconsideration of its circular that has been made in 2018 which was directing the regulated entities to not deal in cryptocurrencies.

Advocate Ashim Sood has said that cryptocurrencies were more like commodities rather being like currency and that the cryptocurrency is beyond the jurisdiction of the Reserve Bank of India for regulating the field.

All the entities that were being regulated by the cryptocurrency shall not be dealing in virtual currencies or the services for facilitating any person or entity that it is dealing with shall not be provided, as directed by the Reserve Bank of India in a circular that has been issued in 2018 on 6th of April.

The regulated entities which have already been providing the services were given three months of time to exit the relationship.

The users, holders and traders of the virtual currencies which included the bitcoins have been cautioned regarding the several risks that are associated while dealing with the virtual currencies, by the RBI by issuing circulars on December 24, 2013, February 1 in the year 2017 and on December 5 in 2017. The circular that was made on April 6 of the year 2018 was challenged at the Supreme court.

Keeping in mind the consumer interest and to check the money laundering, the regulated entities which included the banks have been directed by the Reserve Bank of India in not providing services to business dealing via virtual currencies like bitcoins.

By Shrithika Kushangi

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Reserve Bank of India