Bitcoin Is Not Valid As Currency, Says India’s Central Bankbr>
The Reserve Bank of India (RBI), the country’s central bank, has filed an affidavit in the supreme court arguing that cryptocurrencies cannot be recognized as legal currency due to existing legal frameworks.
In April of this year, RBI issued a controversial decree directing all regulated financial institutions to quit providing services to businesses dealing in cryptocurrencies, giving banks three months to comply. In response, crypto exchanges filed a petition in the supreme court to grant a temporary stay on RBI’s circular, which was denied by the court. The next hearing, which has been pushed twice already, is now scheduled for September 17.
In RBI’s counter affidavit, which will be reviewed during the next hearing, the central bank argues that cryptocurrencies, such as bitcoin, cannot be validated as a ‘payment system’ since it is peer-to-peer and does not involve a service provider.
“It is submitted that crypto-currencies fall short of being true currencies,” stated the affidavit, filed through the Assistant General Manager of the RBI. “It is further submitted that RBI does not consider virtual currencies such as bitcoins as ‘currency’ under the extant laws. There are no enabling provisions under the extant law to treat bitcoin as currency.”
The affidavit said that while the Foreign Exchange Management Act (FEMA) gives the central bank the authority to name instruments as valid currency, the act itself is only valid for instruments with similar characteristics that of checks, money orders, postal orders, etc.
“Thus, legally it may not be possible to notify bitcoins as currency for the purpose of FEMA,” the affidavit said. “Since bitcoins and other VCs are not in the physical form and neither expressed or drawn in Indian rupees, the definition of ‘Indian currency’ cannot be made applicable to bitcoins.”
Since cryptocurrencies are not issued by any sovereign state, the RBI argues that they cannot be considered as foreign currency too. The Payment and Settlement System Act (PSSA) is also not applicable to cryptocurrencies because they are defined neither as money nor as currency.
“Therefore, the question of RBI declaring them as legal or illegal does not arise,” stated the affidavit, adding that the issue of legalizing cryptocurrencies will have implications on the role and responsibilities of other regulatory and enforcement agencies as well and therefore the “RBI cannot unilaterally decide for the Government, on the legality of bitcoins.”
Since the circular was issued, trading volumes in India have taken a big drop. In response, a number of local crypto exchanges have come up with methods to allow users to continue to deposit and withdraw Indian rupees.