Reserve Bank of India’s Crypto Banking Blockade Goes Awry
The Reserve Bank of India’s (RBI’s) draconian crypto banking ban appears to have backfired. The central bank is concerned that the blanket ban has driven the majority of Indian crypto activity underground, where the government has little to no oversight.
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Traders Shift to Peer-to-Peer Markets
Close to five months after the banking blockade on crypto, an excerpt in the Reserve Bank of India’s 2017-2018 annual report, entitled “Cryptocurrency: Evolving Challenges”, calls for monitoring digital currency trading, much of which has shifted from partially regulated exchanges to unregulated peer-to-peer networks. The increased cash dealings in bitcoin occurring outside of the regulatory purview could result in a breach of anti-money laundering regulations.
“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased use of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT (anti-money laundering/combating the financing of terrorism) and taxation issues, require close watch.”
At the time of the banking ban, many crypto insiders predicted that digital currencies would simply go underground, in much the same way as cash. A graph from Coin.Dance, a bitcoin analytics provider, indicates that hits to LocalBitcoins — an over-the-counter fiat-crypto trading platform — saw some gains following the banking ban.
Crypto One of the Reserve Bank of India’s Biggest Challenges
The 268-page report suggests that the continual growth in cryptocurrency interest and activity poses a threat to the existing financial system. “The cryptocurrency eco-system may affect the existing payment and settlement system which could, in turn, influence the transmission of monetary policy,” the report outlines.
On April 6th, the RBI released a circular whereby all financial institutions were ordered to stop facilitating crypto businesses and were required to square their dealings with crypto businesses within a three-month settlement period.
Crypto businesses have challenged the tyrannical banking freeze at the highest judicial arena of the country — the Supreme Court of India. The Supreme Court is due to present its verdict on September 11th.
Losing hope that the court will rule in favor of the cryptoverse, Indian traders have turned to dabba trading, also known as bucketing. Additionally, many exchanges that still offer services to the Indian market have migrated to friendlier jurisdictions.
Furthermore, the annual report also shed light on the progress of the development of its fiat-backed digital currency. The RBI has established an inter-departmental panel to study the feasibility of developing a Rupee-backed virtual currency.
Did the Reserve Bank of India’s crypto banking freeze backfire? Share your views in the comments section below.
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