The Reserve Bank of India today reveals that it hadn’t banned cryptocurrencies in India but only ringfenced regulated entities like banks. It’s because of the risks associated with the trading of such virtual assets. The central bank of India said this in a response to a petition filed by the IAMAI. Internet and Mobile Association of India (IAMAI) wants RBI to reconsider 2018 circular directing regulated entities not to deal in cryptocurrencies.

Petition Reached Supreme Court to Allow Cryptocurrencies in India

The IAMAI, whose members include cryptocurrency exchanges, had approached the Supreme Court against the RBI action. In a hearing earlier this month, the association argued that trading in cryptocurrencies in India, in the absence of a law banning those, was a legitimate business activity. However, the RBI had effectively banned it by blocking access to banking channels.

The copy of a 30-page affidavit that RBI had filed in the SC on 4th September’19 says that

Firstly, RBI hasn’t prohibited virtual currencies in the country. The RBI has directed the its entities to suspend services for those persons/entities dealing in or setting virtual currencies. The RBI has rights to ringfence the entitites regulated by it if finds involvement in activities that pose reputational and financial risks along with other legal and operational risks.

The risks highlighted by the central bank included terror financing and money laundering through cryptocurrencies. In response to IAMAI’s objections, RBI said in its affidavit that

Any possible avenues which facilitate anonymous cross-border fund transfer have to be acted upon swiftly and stringently dealt with. It is an admitted fact that virtual currencies have been used to purchase illegal and illicit goods ranging from guns and ammunition to drugs.

What’s RBI Response to the Petition?

During discussions with the government on banning cryptocurrencies earlier in 2018, the RBI initially said to prohibit ICOs. And, people aren’t allowed to set up and/or operate virtual currency assets within the legal jurisdiction of India. For this reason, RBI also suggests enhancing the Foreign Exchange Management Act and its regulations. By doing so, it will prevent and track remittances for investment in virtual currencies made under the Liberalized Remittance Scheme. The RBI’s Liberalized Remittance Scheme allows individuals to send $250,000 a year abroad.

The central bank wasn’t against technological innovation. And is readily encouraging the “development and adoption of distributed ledger technology, also called blockchain technology. The representative told.

According to the legal experts, the stance on crypto trade posing a risk to sovereignty could be a weak one if not substantiated with examples of virtual currencies used to fund terror in the past.