Reserve Bank of India

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Reserve Bank of India
Reservebankofindialogo.png
Founded 1935
Headquarters Mumbai
Web site www.rbi.org
Releases Organization News

The Reserve Bank of India is India's central bank.

History[edit]

The Reserve Bank of India was established on Apr. 1, 1935 in accordance with the provisions of the Reserve Bank of India Act of 1934. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the government of India.

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.[1]

In February of 2010, the Securities and Exchange Board of India (Sebi) and the Reserve Bank of India (RBI) asked stock exchanges for feedback on introduction of currency options.[2]

Cryptocurrencies[edit]

Among other things, the Reserve Bank of India ("RBI") also supervises the business of financial institutions in India, including their use of cryptocurrencies and support for their customers' use of cryptocurrencies. On April 6, 2018 the RBI announced a prohibition on its regulated entities' use of cryptocurrencies. It provided three months' relief for entities already dealing in cryptocurrencies.[3]

Referring to them as Virtual Currencies or VCs, on December 24, 2013 the RBI cautioned users of cryptocurrencies about the risks attendant to the cryptocurrencies' lack of governmental backing, incomplete infrastructure, and unclear legal circumstances around their issuance and transfer as well as their propensity to be used in fraud.[4] On February 1, 2017, noting that it had not provided anyone authorization to trade or transact in cryptocurrencies, the RBI reminded users that they did so at their own risk.[5] In another press release on December 5, 2017 the RBI again reminded users that it had not authorized the use of cryptocurrencies including bitcoin.[6]

In April 2019, RBI announced the framework of a fintech regulatory sandbox. Although blockchain-focused businesses were permitted by the framework, it excluded crypto-focused businesses.[7][8]

Cryptocurrency ban[edit]

On April 6, 2018 the RBI told all banks and payment system providers that they were no longer permitted to engage in cryptocurrency business.[9] Temporary, three-month relief was provided to entities already active. The ban does not apply to non-regulated entities nor to the population at large.

Litigation against the banking ban was entered into before the Supreme Court of India. The Supreme Court declined to overturn the ban on July 3, 2018. The Indian Ministry of Finance may make a final ruling on a broader ban of trading in cryptocurrencies.[10]

In January 2019, users across India began reporting over Twitter that other Indian banks, such as Kotak Mahindra Bank, had begun following suit with the RBI's ban. Users posted screenshots of agreements requiring users to do things like give their banks the right to close their accounts without further notice should they “deal with any transactions related to Crypto-currency including Bitcoins." Similar warnings were reported appearing on ATM screens. Twitter users in Pakistan reported receiving similar warnings from banks, such as Faysal Bank.[11]

In June 2019 Varun Sethi, a lawyer specializing in blockchain laws, filed an inquiry into the RBI's involvement with a bill being drafted by Indian legislators. The bill, “Banning of Cryptocurrencies and Regulation of Official Digital Currencies Bill 2019," which was reported on by the Economic Times, would ban the sale, purchase, and issuance of all cryptocurrencies in India. Officials from the RBI denied any involvement with the bill, saying they had not been in contact with the legislators drafting the bill.[12]

In June 2019, the RBI ordered Koinex, an Indian cryptocurrency exchange, to cease operations and shut down. The ban was challenged in the Indian supreme court.[13] According to CoinDesk, an online cryptocurrency news service, RBI admitted that it "ring fenced" banks and financial institutions in order to keep them from from dealing in cryptocurrencies due to its perception that dealing with cryptocurrencies poses reputational and financial risks. A hearing regarding the ban was scheduled for January 21, 2020.[14]

Ban overturned[edit]

In February 2020, India's Supreme Court overturned the RBI's ban from April 2018, calling it "unconstitutional." This paved the way for Indian traders to legally directly deposit Indian rupees from their bank accounts to cryptocurrency exchanges.[15][16] A local Indian news outlet, the Economic Times, reported that the RBI was planning to appeal the decision.[17]

Ironically, RBI made a complete reversal from its earlier positions against cryptocurrency use when it warned banks on May 31 that they could not use RBI’s earlier circulars to deny banking services to persons dealing in cryptocurrencies. RBI's circular said that banks should still conduct due diligence of their customers "in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002 in addition to ensuring compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances."[18]

Blockchain research unit[edit]

In August 2018, a rumor began circulating that the RBI had created a unit to "research and possibly draft rules" for engaging in the blockchain space in India, after an article was published in the Economic Times India. The RBI issued a statement in late September denying the "formal creation" of such a unit.[19][20]

In October, senior government officials contradicted this statement, saying that India's finance ministry was "evaluating the government-backed cryptocurrency and crypto-token...and we are looking to develop and encourage our own research and development of blockchain technology." The official went on to say that possession of non-government-controlled cryptocurrencies may soon be a punishable offense in India.[21]

Central bank digital currency[edit]

In its 2020-21 monetary policy review, Report on Currency and Finance, the Reserve Bank said that it was imperative for it to be ready to "operationalize" a central bank digital currency (CBDC). The report indicated that, among other things, the bank did not want India to be left behind when other countries began adopting CBDCs.Recognizing the transformative potential of innovation, the bank also said, FinTechs would reduce transaction costs among counterparties; provide transparency with simpler products; and increase efficiency (Curran, 2016). FinTechs would be the vehicle to reach customers who are outside the pale of the financial system thereby promoting financial inclusion. [22]

References[edit]

  1. About Us. Reserve Bank of India.
  2. Regulators Seek Bourses' View On Currency Options. Business Standard.
  3. Prohibition on dealing in Virtual Currencies (VCs). Reserve Bank of India.
  4. RBI cautions users of Virtual Currencies against Risks. Reseve Bank of India.
  5. RBI cautions users of Virtual Currencies. Reseve Bank of India.
  6. Reserve Bank cautions regarding risk of virtual currencies including Bitcoins. Reseve Bank of India.
  7. India’s top court overturns ban on banks dealing in cryptocurrencies. Financial Times.
  8. After Court Victory, Indian Exchanges Gear Up for Crypto Trading Surge. Coindesk.
  9. Prohibition on dealing in Virtual Currencies (VCs). Reserve Bank of India.
  10. Cryptocurrency Virtually Outlawed in India as Top Court Backs Ban. Bloomberg.
  11. Indian Banks Force Customers to Promise Not to Use Bitcoin. CCN.
  12. Reserve Bank of India Denies Involvement in Draft Bill to Ban Cryptocurrencies. Coindesk.
  13. Another Indian Crypto Exchange Shuts Down Blaming Banking Ban. Coindesk.
  14. India’s Central Bank Explains in Court Filing Why It Blocked Banks From Using Cryptos. CoinDesk.
  15. India’s top court overturns ban on banks dealing in cryptocurrencies. Financial Times.
  16. After Court Victory, Indian Exchanges Gear Up for Crypto Trading Surge. Coindesk.
  17. Indian Central Bank to Appeal Against Top Court’s Decision on Crypto. Finance Magnates.
  18. Notifications: Customer Due Diligence for transactions in Virtual Currencies (VC). Reserve Bank of India.
  19. New RBI unit to track blockchain and AI. Economic Times India.
  20. India's Central Bank Denies 'Formal Creation' of Blockchain Unitn. Coindesk.
  21. After strangling bitcoin, India may launch its own cryptocurrency. Quartz india.
  22. Report on Currency and Finance, 2020-21. Reserve Bank of India.

Membership[edit]

Key People[edit]

References[edit]