And the digital rupee ?: the battle of the Indian Central Bank vs the cryptocurrency industry

Last week the Supreme Court of India ruled against the ban carried out by the Central Bank of India in 2018 by which banks and financial institutions under its supervision could not carry out any type of cryptocurrency exchange or any other service. for any entity that manages them.

This decision caused many companies that performed these exchange services to close, or to relocate to other jurisdictions, even had to restrict their business model to crypto-to-crypto trading, without the intervention of fiat currency, Coindesk said. That is why many startups and crypto exchanges affected, led the requests to the Indian court to rule on the decision made by the Central Bank. Fortunately, the result was positive, although… perhaps it is early to claim victory.

What did the Supreme Court say? Although he revoked the 2018 circular issued by the Central Bank, he did not declare it unconstitutional. He pointed out that, under the proportionality test, said circular was not the proportional measure to intervene in the cryptocurrency market. In this sense, the Supreme Court ruling leaves ample space for those responsible for financial policies to study and publish a rethink regarding the treatment of cryptocurrencies in the country.

The Central Bank's response? You plan to submit a request for review of ruling issued by the Supreme Court last week. They point out that the reactivation of the encryption system in the country could be a risk for the banking system.

But, let's go back a bit, What were the Central Bank's reasons for declaring the 2018 ban? According to Quartz India, the justification would have to do with: (i) the protection of investors and banks from possible (very possible) fraud, the anonymity of transactions (given the difficulty in tracking the source of the money), and the lack of of intrinsic value of cryptocurrencies. The truth is that these arguments are, at least, debatable.

In the first place, frauds exist in any field, even more so in banking, so prohibiting their operation is not the way to solve such a problem. Second, in terms of money tracking, many companies that offer cryptocurrency exchange services report complying with the regulations regarding the identification of their clients, in order to avoid money laundering situations. Finally, regarding the intrinsic value of cryptocurrencies, they point out that once the market matures, its intrinsic value may increase. But beyond trying to rebut the arguments of the Indian Central Bank, it is important to note that such arguments attempted to make the cryptocurrency industry more like the banking market, which is clearly problematic.. It is totally valid to regulate the cryptocurrency market, it is more, it is necessary, but the important thing is to start from an in-depth study regarding the aspects that need such regulation.

And the digital rupee? In preparations. According to a draft published by the National Institute of Smart Governance (NISG), the creation of the digital Indian rupee and a state-managed national blockchain is planned as an alternative to public blockchains, Cointelegraph noted. However, the NISG urged the development of clear and light regulations (as opposed to the restrictive zeal shown so far) regarding the cryptocurrency industry.

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Marilú Lazo
Lawyer from the Pontificia Universidad Católica del Perú (PUCP). Director of The Crypto Legal Blog, she has experience in corporate advice, consumer protection, as well as in matters of personal data protection and new technologies.

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