Like rest of the world, cryptocurrencies have recently become massively popular in South Asia. India, being the largest market in the region, has made it one of the hottest areas where investors were attracted to the tumultuous market and by promises of unprecedented ROI.
However, the recent tide of the regulatory policies across Asia have found their way into the country as well. With governments all over the world gradually cracking down on cryptocurrencies, and banks disallowing credit cards to be used for crypto-trading, India is following suite. There are at least two recent developments that indicate that India may be moving towards a crypto-trading ban like Chinaand potentially South Korea.
The Reserve Bank of India (RBI) has been very skeptical about cryptocurrency trading, and has issued a series of warnings to investors and banks. As a result, some of the leading banks like ICICI Bank, SBI and Yes Bank have frozen accounts of leading Bitcoin exchanges, and have become more cautious about financing trades. A couple of days ago, Citi India also banned its customers from using their credit cards for any investment in the cryptocurrency market.
The second development surfaced on February 1st, when the Indian finance minister, while presenting the Union Budget, expressed strong dislike for the digital currencies. According to him, “The government does not recognize cryptocurrencies as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payments system.”
As a result, the legal status of the digital currencies remains in limbo. If this view (that cryptocurrencies are threat to financial stability) becomes more pervasive, the government may move towards tighter regulations or even an outright
ban, as suggested by many.
Why Would India Consider Moving Towards a Ban?
While there is no detailed information available, public statements by the officials and precautionary notes by RBI suggest that money-laundering is the biggest fear of Indian regulators. In addition, consumer protection from price volatility and the complex nature of the assets are the other two factors leading to the unease in government circles.
In April 2017, the government set up a dedicated committee to look into cryptocurrencies and suggest new regulatory measures. The committee consisted of the officials from the Reserve Bank of India, Securities and Exchange Board of India, and the finance ministry.
The committee suggested to slowly throttle the trading platforms but advised against an immediate ban. The idea was to shut down the crypto-exchanges based inside the country, but allow the people to invest in overseas markets. If a local ban doesn’t stop trading at home, the government would slowly move towards tighter steps – even banning it altogether.
The government setup another committee in December 2017 and its report is expected to come in the near future. However, the regulatory bodies in India are deeply studying the market to avoid any knee-jerk reactions and want to prepare a solid strategy to track transactions, earn taxes on the earnings, protect the small investors, and bring in anti-money-laundering measures.
However, unless the committee acts on the recommendations, or we hear more details from the officials, it is premature to assess the exact future-course India will take.