SC lifts total ban on cryptocurrency trade; quashes 2018 RBI circular banning banks from providing services

The Supreme Court on Wednesday lifted complete ban on cryptocurrency trade and quashed the 2018 circular of the Reserve Bank of India (RBI) which had prohibited banks and financial institutions from providing services with relation to cryptocurrencies.Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of currency units and verify the transfer of funds, operating independently of a central bank.[caption id="attachment_4391767" align="alignleft" width="380"]

Representational image. Reuters.[/caption]"We have allowed the writ petitions," a bench headed by Justice RF Nariman said while pronouncing the verdict.Last month, the RBI had said in the Supreme Court that it always opposed the use of any other payment modes and discouraged banks from using transactions involving cryptocurrencies.The central bank argued that though there was no formal ban on cryptocurrencies under any law, the central bank consistently warned about the risks of dealing in virtual currenciesIn April 2018, the RBI had directed all regulated entities including banks not to provide services to businesses dealing in virtual currencies like bitcoins, so as to protect consumer interest and check money laundering.RBI said it has repeatedly cautioned users, holders and traders of VCs, including bitcoins, regarding various risks associated in dealing with such virtual currencies."In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs," RBI said in a bid to ring-fence such entities.In July 2019, a government panel had recommended banning all private cryptocurrencies and a jail term of up to 10 years and heavy fines for anyone dealing in digital currencies, which could signal the end of them in India.The panel had drawn up a report and draft legislation, which would be examined by the government and regulators before they made a final decision, the government had said in a statement.The panel has, however, asked the government to consider the launch of an official government-backed digital currency in India, to function like bank notes, through the Reserve Bank of India.Authorities in various countries are considering how to regulate cryptocurrencies, particularly after Facebook announced plans to launch one called Libra, because of risks to the financial system and consumer data.— With inputs from agencies