The Reserve Bank of India, or RBI, published a press release on its Developmental and Regulatory policies on the 5th April 2018. The press release can be found here. Number 13 titled “Ring-fencing regulated entities from virtual currencies” Concerns the banning of cryptocurrencies. It highlights the potential risks that cryptocurrencies pose to consumer protection, market integrity and money laundering.
The ban is to come into effect immediately
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.”
This move does not come as a surprise. as the finance minister Arun Jaitley made a promise during his budget speech to ban cryptocurrencies. This was done under the guise of combating money laundering and the funding of terrorism.
He said “The government does not recognize cryptocurrency 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” (source)
The Indian government has taken similar drastic measures related to monetary policy in recent years. This is often done to combat the problem of “Black Money” which is income earned illegally, or not disclosed for taxation. In 2016 they banned all Rs 1,000 and Rs 500 notes from circulation. This in turn led to wide spread criticism from opposition parties, and led to a crash the following day in the S&P BSE SENSEX (S&P Bombay Stock Exchange Sensitive Index) dropping nearly 1,689 points. It will be interesting to see how the ban of cryptocurrencies effects the problem of “Black Money” or if cryptocurrencies will further thrive in the black market.