Has India’s Central Bank Changed Its Mind About Cryptocurrencies?

After years of outright dislike for cryptocurrencies, India’s central bank appears to have had a change of heart. On May 31, the Reserve Bank of India (RBI) told banks and other financial institutions in the country that they should not cite its 2018 circular that barred them from dealing with cryptocurrencies while cautioning customers against virtual coins. The 2018 circular was struck down by the Supreme Court in March 2020, which made it invalid.

“It has come to our attention through media reports that certain banks/ regulated entities have cautioned their customers against dealing in virtual currencies… by referring to the RBI circular dated April 06, 2018 (pdf). Such references to the above circular by banks/ regulated entities are not in order as this circular was set aside by the supreme court,” the latest RBI circular read.

The cryptocurrency ecosystem in India is interpreting the RBI’s stance as a support for the industry. “This is positive news for the entire crypto industry—businesses, stakeholders, and investors. Investing in crypto has always been 100% legal in India and the new RBI circular clearly confirms the right to do business with crypto firms,” said AvinashShekhar, Co-CEO at ZebPay.

RBI’s cryptocurrency stance

India’s central bank as well as the country’s government have never supported virtual coins. Besides the 2018 circular that nearly stifled the cryptocurrency ecosystem in India, RBI has time and again issued warnings against investments into bitcoins and other virtual coins.

In 2017, India’s then-finance minister ArunJaitley had said the government “does not recognise Bitcoin as legal tender or coin and will take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payments system.”But the central bank perhaps thought it ethical to warn banks against illegally quoting an outdated circular.

RBI’s recent statement came after several leading Indian banks, including the State Bank of India and HDFC Bank, sent emails to their customers warning them against the use of cryptocurrency. The banks cited RBI’s 2018 circular in these emails stating that users who deal in virtual currencies may face account suspension.There have also been reports that WazirX, India’s largest cryptocurrency bourse, faced many issues with financial transactions with its banking partners due to the confusion related to the RBI’s earlier notification.

“The crypto industry has been facing a lot of issues when it comes to using formal banking channels for trades and this circular will clear the air. RBI’s stance on crypto asset trading was not changed since the supreme court order in March 2020 and it was highly unpleasant to see banks pulling the plug on crypto exchanges which impacted millions of investors across the country,” said ShivamThakral, CEO of BuyUcoin, a Delhi-based cryptocurrency exchange.