RBI Losing Sleep Over Negative Consequences of Cryptocurrency Ban

The Reserve Bank of India (RBI), the country’s central bank, is reportedly losing sleep over the unconsidered consequences of its cryptocurrency crackdown. Reports from the country indicate that the virtual currency market has mostly adapted to the environment created by the RBI ban with a shift towards peer-to-peer (P2P) platforms and crypto/crypto trading pairs.

Circumventing the Cryptocurrency Ban

According to Quartz India, RBI is afraid that its ban has made it even more difficult to police the country’s cryptocurrency market. As part of its yearly report published on Wednesday (August 29, 2018), the apex bank said,

“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT (anti-money laundering/combating the financing of terrorism) and taxation issues, require close watch.”

Since the ban, first announced in April and enforced in July, traders and platforms alike have changed tactics in order to circumvent the ban. The RBI ban prohibits commercial banks from facilitating virtual currency transactions. Thus, platforms have moved away from online platforms to over-the-counter (OTC) and other P2P services.

Other platforms have also incorporated crypto/crypto trading features as a way of working around the restrictions of the ban. Some exchange services, disappointed with the RBI’s decision, have moved their operations to other countries.

In all, the consensus is that the apex bank’s ban has failed to make any meaningful positive contribution to the country. In June, reports emerged that the bank didn’t carry out any meaningful research before issuing its ban.

Even more ironic is the fact that Indian cryptocurrency exchange platforms were already adopting robust KYC protocols before the ban. Commenting on this point, Praveen Kumar, the CEO of Belfrics, a virtual currency broker operating in the country, said,

“The exchanges have been following a robust know-your-customer procedure and enforcing only bank-related transfers which could have helped to keep a tab on the money trail.”

September 11 Supreme Court Judgement

While many platforms have taken steps to prevent the ban from adversely affecting their operations, some have formed a coalition to challenge the prohibition itself. There is currently a case before the Supreme Court contesting the legality of the RBI’s pronouncement.

On July 20, the court heard preliminary arguments from the petitioners. The court adjourned the case till September 11, 2018, when it is expected to deliver its final judgment on the matter.