After months of signalling its uneasiness with digital currencies, India dealt the ecosystem a body blow in April. The country’s central bank directed lenders to close down bank accounts of cryptocurrency exchanges and its users within three months. Since then, these bourses have been inching towards the end of the road.
So, what brought the Reserve Bank of India’s (RBI) sledgehammer down finally?
Was it the findings of a research paper? No.
Or, the decision of an RBI-backed panel? No.
Perhaps, India’s central bank consulted laws or research being followed by other countries? No.
These answers were revealed in the RBI’s reply to a Right To Information (RTI) application fled by Varun Sethi, a lawyer based in New Delhi, a copy of which was reviewed by Quartz. Sethi had filed the RTI in the first week of April and had received the reply by May 09 but he revealed the contents only on June 12.
“It seems as if the ban was arbitrary and it came into effect without any thought from the RBI. It has either answered in the negative or given conflicting answers to our questions asking what led to this ban,” Sethi explained.
The RBI does accept that its representatives have been part of two finance ministry-led committees formed to come up with regulations for digital currencies. However, the government has still not banned cryptocurrencies. Therefore, the RBI’s decision may have been hasty, believe Indian virtual currency exchanges.
Subsequent questions in the RTI plea on what led to the crackdown, and the central bank’s concerns over the virtual exchange ecosystem, remained unanswered as they didn’t fall under the purview of the RTI Act.
Since April, various exchanges have dragged the central bank to the country’s top court and are still awaiting clarity. They believe the RBI’s seemingly weak replies will add muscle to their case and can be presented in the supreme court as a supporting document against the ban.
“They came out with this ban, which has monumental consequences, without doing any significant research and so it seems like a completely superficial decision,” said Nischal Shetty, founder and CEO of WazirX, an Indian cryptocurrency exchange. “There are other countries who are not comfortable with such currencies but none of them have banned it. Instead, countries like the US, France, Germany, etc. have gone back to the drawing board and are trying to understand its dynamics.”
Sethi now plans to file another RTI plea seeking more answers from the central bank, failing which he will seek a meeting with the RBI officials to understand their perspective. If both these avenues fail then he plans to approach the supreme court. “I can explain to the court that my public interest litigation is a last resort and despite several attempts the RBI failed to provide any satisfactory answers,” Sethi said.
There are approximately three million virtual currency users in India and it hurts them as much as it hurts the exchanges, said Kunal Barchha, director at Kali Digital Eco-Systems which plans to launch its cryptocurrency exchange in the next few months. “Therefore, the central bank needs to be more thoughtful,” added Barchha.