India’s crypto community was shocked when the Reserve Bank of India (RBI) issued a circular on April 6, 2018, which prohibited banks and other financial institutions from providing any crypto-related service, revealing the RBI’s anti-crypto stance.
Lately, however, there are indications that it might be changing this stance, or at least it might have recently realized that its previous approach may not be the best course of action. For instance, the bank is now publicly expressing its concern over the consequence of the ban, such as the increasing trend toward P2P trade.
Meanwhile, reports have recently surfaced saying that RBI has quietly formed a new blockchain research unit to manage the sector better, and there are even reports that it is considering a central-bank-issued cryptocurrency.
RBI Worried About P2P Trading as a Result of Its Ban
The Reserve Bank of India now fears that it may have pushed the cryptocurrency underground and below the radar of regulatory controls, according to a Quartz India report. In a recently released RBI annual report, the bank wrote:
“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 RBI’s ban took effect in July, crypto investors and traders have likewise implemented measures to circumvent it. Most migrated to a peer-to-peer model, where both the buyer and the seller settle their transaction directly with each other. In this model, the crypto exchange’s role becomes akin to a matchmaker, helping sellers get in touch with buyers.
On the other hand, some crypto traders opted to make their trades without using the Indian rupee or any other fiat currency. Called crypto-to-crypto transactions, the parties trade one crypto for another crypto at predetermined rates.
Another concern that stemmed out of the RBI ban is that some exchanges actually opted to transfer their operations offshore. This raises a lot of issues such as the potential for tax fraud and money laundering.
RBI Forms New Unit to Handle Crypto, Blockchain, and AI
Recently, the Reserve Bank of India is reported to have formed a new unit that will be specifically tasked to address regulatory concerns of emerging technologies. According to The Economic Times, the unit is just one month old and was formed without much fanfare. This new research unit is tasked to “possibly draft rules and supervise new emerging technologies” such as blockchain, cryptocurrency, and artificial intelligence.
The creation of the new unit could mean that RBI is now aware that it could not just rashly make circulars — such as its April crypto ban — when it comes to newly introduced technologies. Analysts say that the bank wants to do the right thing this time, and as what an unnamed source told the publication:
“As a regulator, the RBI also has to explore new emerging areas to check what can be adopted and what cannot. A central bank has to be on top to create regulations. This new unit is on an experimental basis and will evolve as time passes.”
RBI Eyes Issuing Its Own Digital Currency
And now, here is something even more incredible, especially since it involves the RBI yet again. Latest reports seem to suggest that RBI is not against cryptos at all, that is, so long as it is the one that issued the token.
RBI is reported to be mulling on the possibility of the government issuing its own crypto, according to a report by The Economic Times. The bank is eyeing using digital currency to fight the rising costs of producing paper money. In its annual report, the bank wrote:
“In India, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency.”
Understandably, RBI received criticisms when it issued the ban back in April as many felt that it did not do enough research in the area before taking the plunge. The fact that it is now considering issuing its own digital currency, coupled with the formation of a new research unit, could hint that the government institution is now more open to the usage of cryptos under the right circumstances.