India’s supreme court has struck down a two-year ban on cryptocurrency use in the country, boosting the prospects for adoption of virtual currencies in the world’s second most populous state.
The ban was originally introduced by India’s central bank, the Reserve Bank of India (RBI), which in April 2018 issued a circular stopping financial services companies from dealing in or settling transactions in virtual currencies.
“Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of VCs”, the RBI said at the time.
The IMAI argued that cryptocurrencies weren’t a currency but a commodity
By lifting the ban, the supreme court appears to have sided with the arguments of the petitioner in the lawsuit, the Internet and Mobile Association of India (IMAI).
The IMAI had questioned the RBI’s powers to impose the ban, arguing that cryptocurrencies weren’t a currency but instead resembled a commodity.
In its arguments before the supreme court, the central bank had underscored that it had treated cryptocurrency as potential competitor to the country’s new digital payment system.
In some ways, India’s stance on cryptocurrencies has mirrored that in its neighbour and the world’s largest country by population, China.
In 2013, the People’s Bank of China (PBOC) prohibited financial institutions from handling bitcoin transactions, then in 2014 it ordered commercial banks and payment companies to close bitcoin trading accounts.
In 2017 China banned cryptocurrency exchanges and trading platforms and in early 2018 the People’s Bank of China said it would crack down on bitcoin mining.
However, in October 2019 China softened this stance after President Xi Jinping gave a speech saying China needs to ‘seize the opportunities’ presented by cryptocurrency and blockchain.
The following month, China’s economic planning agency removed cryptocurrency mining from a list of activities set for elimination.
China’s cryptocurrency ban had in any case been widely flouted.
“We look forward to empowering 3 billion people with the freedom of money”
The country is estimated to perform around two-thirds of bitcoin mining, while Chinese-owned cryptocurrency trading firms have been moving rapidly from one jurisdiction to another while continuing to operate.
For example, in November one of the world’s largest cryptocurrency exchanges, Binance, refuted reports that Chinese authorities had raided its office in Shanghai, which was allegedly operating in defiance of the authorities’ cryptocurrency trading ban.
Binance was founded in China but moved its servers and headquarters into Japan in advance of China’s September 2017 ban on cryptocurrency trading.
Then, after increased scrutiny from Japan’s Financial Services Authority, in March 2018 Binance said it was building up operations in Malta, with many websites reporting the Mediterranean island as the exchange’s new HQ.
However, recently, Malta said it had not given Binance a licence to operate. Crypto news site Decrypt has since reported that Binance is legally registered in the Cayman Islands and the Seychelles.
In a tweet on Wednesday 4 March, Binance’s CEO, Changpeng Zhao, who was recently reported as the wealthiest individual in the cryptocurrency industry, welcomed the decision by India’s supreme court to lift the country’s cryptocurrency ban.
“We look forward to empowering 3 billion people with the freedom of money,” Zhao said.
Don’t miss any more New Money Review content: sign up here for our newsletter
Click here for a full list of episodes of the New Money Review podcast: the future of money in 30 minutes