On May 31, the Reserve Bank of India (RBI) told banks and other financial institutions in the country that they shouldn't have cited the 2018 circular that banned them from dealing with cryptocurrencies and warned customers about virtual currencies. The 2018 circular was overturned by the Supreme Court in March 2020, which rendered it null and void.
RBI's stance on cryptocurrencies
"Through media reports it has come to our attention that some banks / regulated entities have warned their customers against trading virtual currencies ... referring to the RBI circular of 6 April 2018. References to the aforementioned circular by banks / entities regulated are not in order as this circular was annulled by the Supreme Court ”, reads the latest circular of the RBI.
The cryptocurrency ecosystem in India is interpreting the position of the RBI as a support for the industry. “This is positive news for the entire cryptocurrency industry: companies, stakeholders and investors. Invest in cryptocurrencies has always been 100% legal in India and the new RBI circular clearly confirms the right to do business with cryptocurrency companies, ”said Avinash Shekhar, Co-CEO of ZebPay.
The Indian central bank and the country's government have never supported virtual currencies. In addition to the 2018 circular which nearly stifled India's cryptocurrency ecosystem, RBI has repeatedly issued warnings against investing in bitcoin and other virtual currencies.
In 2017, then Indian Finance Minister Arun Jaitley said the government "does not recognize Bitcoin as legal tender or currency and will take all steps to eliminate the use of these cryptocurrencies in financing illegitimate businesses or as part of the payment system".
The central bank warns banks against citing an outdated circular
RBI's recent statement came after several major Indian banks, including the State Bank of India and HDFC Bank, sent emails to their clients warning them against using cryptocurrency. Banks cited the 2018 RBI circular in these emails stating that users dealing with virtual currencies could face account suspension.
It has also been reported that WazirX, India's largest cryptocurrency exchange, has faced many problems with financial transactions with its banking partners due to the confusion surrounding the previous RBI notification.
“The cryptocurrency industry faced a lot of problems when it came to using formal banking channels for trading and this circular will clear the air. RBI's stance on cryptocurrency trading has not changed since the supreme court order in March 2020 and it was very unfortunate to see banks pull the plug from cryptocurrency exchanges that impacted millions of investors across the country. " said Shivam Thakral, CEO of BuyUcoin, a Delhi-based cryptocurrency exchange.