After issuing an official circular in April of an impending ban on banks dealing with cryptocurrencies, India has finally cracked down. The Reserve Bank of India’s (RBI) deadline for banks to sever ties with cryptocurrency exchanges and related businesses expires today. Banks and businesses regulated by the RBI are now obligated to terminate existing relationships with firms or individuals involved in cryptocurrencies.
Bitcoin and cryptocurrency holders who have not transferred their coins from banks controlled by India’s central bank will no longer be able to liquid their crypto assets.
Although the ban was challenged, the Supreme Court upheld the RBI’s order and has refused any relief or extension period.
Cryptocurrency investors now have a limited number of options moving forward.
Exchanges will now have to move to peer-to-peer trading only, eliminating online banking channels. Prior to the ban, all trades occurred through online bank accounts that were linked to exchanges, which facilitated the conversion of Indian Rupees to Bitcoin and other cryptocurrencies. Without any participation from banks or input of fiat currency, trading will become peer-to-peer and crypto-to-crypto.
Zebpay, India’s leading exchange, froze deposits and withdrawals on July 4.
The ruling also means that exchanges and businesses dealing with cryptocurrency will forego loans, banking privileges and the use of their cryptocurrency as collateral.
For blockchain developers, innovators and startups, the move is a setback. Developers and entrepreneurs who are trying to bring their world-class applications and platforms to the public will face an official lack of support from the banking sector.
While the RBI’s hard line is comprehensive and heavy-handed, the ban is not a ban on Bitcoin or cryptocurrency, and it does not make them illegal in India. However, the RBI is currently exploring the possibility of creating its own central bank digital currency.
“Rapid changes in the landscape of the payments industry along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money have led central banks around the world to explore the option of introducing fiat digital currencies. While many central banks are still engaged in the debate, an interdepartmental 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. The Report will be submitted by end-June 2018.”