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India’s central bank, the Reserve Bank of India (RBI), has clarified that it has not prohibited cryptocurrencies in the country. Rather, authorities are focused on enacting regulations to prevent illegal financial activities.
The news will bring relief to many investors, who have had to endure several months of uncertainty regarding their investments. The RBI had previously ordered banks in the country to deny services to cryptocurrency-related entities, which began a protracted debate.
The RBI has offered some explanation about the status of cryptocurrencies in India, following a case against the agency in the country’s Supreme Court. The central bank said that it has not banned cryptocurrencies, but rather has taken steps to protect financial institutions from being subject to risks associated with the asset class.
The specific risks that the RBI referred to were money laundering and terror financing. The latest statement comes in response to a petition filed by the Internet and Mobile Association of India (IAMAI), which also includes cryptocurrency entities.
Pro-cryptocurrency entities have been defending the market, arguing that cryptocurrencies ought to be regulated sensibly, and pushing for more general adoption of blockchain technology. On their part, the Indian government has been showing a lot of interest and execution in this regard, with India already testing the technology in the use cases of financial services, land registry, and solar energy distribution, among other things.
A case had been brought to the Supreme Court, which released an affidavit that had been filed on Sept 4. The affidavit reads:
“Firstly, the RBI has not prohibited VCs (virtual currencies) in the country. The RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs… The RBI has been able to ringfence the entities regulated by it from being involved in activities that pose reputational and financial risks along with other legal and operational risks.”
Investors and cryptocurrency proponents have used the success of regulation in countries like Malta and Japan, as well as explaining the technology itself, to allay any fears of illegal activity, and encourage innovation-friendly regulation.
This news will bring investors and industry players a considerable amount of relief, as the general sentiment surrounding the legality of cryptocurrencies has started to pick up following a mostly pessimistic 2019.
In July 2019, Minister of State for Finance and Corporate Affairs, Anurag Thakur, said that the government was not “jumping” to prohibit cryptocurrencies. The country does not, however, recognize cryptocurrencies as legal tender.
The next hearing of the case is scheduled for Jan 28.
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