Earlier today, India’s Supreme Court delivered its verdict in a landmark case for cryptocurrency in the country.
A bench of three justices ruled that the Reserve Bank of India’s (RBI) ban on banks’ services to crypto-related firms was unconstitutional.
Kashif Raza — co-founder of the Indian crypto regulatory news and analysis platform Crypto Kanoon, which first broke news of the ruling — shared his analysis of the likely impact of today’s judgment.
“Positivity for the entire ecosystem”
RBI first issued its ban on banks’ dealings with crypto businesses back in April 2018, which took effect in July of that year.
In response to both public and industry-led petitions, a case combining pleas against the ban was brought before the Supreme Court by the Internet & Mobile Association of India (IAMAI), with hearings for the case held over two weeks this January.
As Raza outlined, today’s ruling means domestic banks will now no longer be able to deny their services to individuals, exchanges or start-ups in the industry.
“It’s a historic day,” Raza said, saying he believes that the ruling will bring “positivity to the entire ecosystem.”
Those on the sidelines of the industry will be emboldened by the court’s intervention, he said, adding that he expects new exchanges to launch, once-shuttered trading platforms to reopen, volume and registrations to rise.
In the medium term, Raza emphasized that crypto regulation in India remains in limbo. He referred to the government’s decision last fall to delay the introduction of a draft bill on a potential cryptocurrency ban to parliament.
This bill — entitled “Banning of Cryptocurrency & Regulation of Official Digital Currencies” — reportedly aimed not only to impose a complete ban on the use of crypto in India but also to pave the way for a state-backed “Digital Rupee” issued by the central bank.
“The finance ministry can still ban crypto by way of an ordinance,” he noted, “or present the bill to parliament. But it is highly unlikely.”
Facts, not fiction
While the future is not a foregone conclusion, Raza argued that RBI’s loss in the Supreme Court could well prompt the government to bide its time before jumping to introduce the bill.
One response, he ventured, would be for the government to convene a new committee to better understand and analyze the industry before making any further decisions.
As reported during the January hearings, IAMAI’s legal counsel had argued before the court that RBI had itself failed to properly research the matter before deciding to take action. “Opinion cannot be formed on imaginary grounds,” the counsel had said.
Raza told CryptoX he believes the government will now need to make more effort to gather its own material and verify facts on the ground, since:
“They know that once they will present the bill before parliament, again the people in India will move to court against it.”
To date, he noted, RBI’s negative stance — combined with uncertainty surrounding the postponed bill — had led to family members, friends and colleagues to regard those in the industry with some suspicion.
Today’s ruling will go some way toward combating the mistaken — and in Raza’s view, widespread — perception that crypto has already been banned in India. “Right now everyone is free to deal in crypto and use banking channels, it’s a great sign,” he said.
In an email to CryptoX, Sumit Gupta — co-founder and CEO of CoinDCX — characterized the Supreme Court hearings as a positive form of engagement with lawmakers and:
“An eventful and information-led opportunity for the cryptocurrency community to make its case known to our country’s decision makers […] to explain to them the nature of our industry […] and the positive effects the incorporation of cryptocurrencies in India could have on the economy.”
Could India follow FATF’s crypto framework?
With the debate over crypto regulation in India set to resume, Raza argued that the government’s membership of the Financial Action Task Force (FATF) could play a decisive role:
“The FATF is pushing its members to introduce policies to regulate crypto and to know who is dealing in it. India’s government could go with the FATF and look to what other nations are doing in line with the FATF and follow their footsteps. Overall we’re very positive and believe the government should come up with guidelines very soon.”
The FATF is an intergovernmental organization established on the initiative of the G7 to promote the implementation of legal, regulatory and operational measures to combat money laundering worldwide.
Last summer, the organization issued updated guidance for Virtual Asset Service Providers (VASPs), including Know Your Customer measures, set to come into force this June.
