While India has not officially adopted a stance for or against virtual currencies, the Government and the Reserve Bank of India have periodically warned against the risks associated with them. The RBI has now reiterated its warning against virtual currencies.
Reiteration of Risks Involved
In a press release, the Reserve Bank of India has stated:
In the wake of significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns conveyed in the earlier press releases.
The RBI had previously in 2013 and early 2017 highlighted the risks associated with cryptocurrencies. It had clarified that it has not given any licence/authorisation to any entity to operate in the Bitcoin space and users were doing so at their own risk. It highlighted the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such virtual currencies.
India – Ripe Ground for Cryptocurrencies
India is seen as a ripe ground for cryptocurrencies partially due to its huge tech-savvy population. The subcontinent is also ripe for digital currency adoption due to the country’s failed demonetization scheme and an inflation rate which has exceeded 10% twice in the last 10 years. India currently accounts for a very small portion of Bitcoin trading volume, having been South Korea and Japan. Indians are the largest consumers of gold in the world and the demand for Bitcoin, the digital gold, is currently increasing.
Bitcoin’s Fuzzy Status
The absence of regulations surrounding cryptocurrencies has resulted in the Supreme Court being asked to adjudicate on the status of Bitcoin. While the Government has taken the usual route of appointing a committee and waiting for it to submit its findings, business continues as usual for exchanges like Zebpay, Coinsecure and Unocoin.
Despite the RBI’s warnings, unless the government clarifies its ambiguous stance, there will be a regulatory vacuum. Earlier this month, Indian Finance Minister Arun Jaitley stated that virtual currencies are not legal tender and said that the government is assessing recommendations by the committee set up to look into the matter. The Indian government may be slow to react but Indians seem to be loving virtual currencies, as seen by the huge demand for Bitcoin at Indian exchanges and substantial premium at which Bitcoin trades in India.