Until today, Bitcoin and other cryptocurrencies in India have operated within a legal gray area. There has been no official stance on their usage by the government. A Director of the Reserve Bank of India (RBI) however, made a public statement on the subject in Mumbai on November 6.
The Executive Director of the RBI, Mr. Ganesh Kumar, declared that Bitcoin and other cryptocurrencies would not be legal tender. Furthermore, they will not be recognized for payments or any other monetary exchanges. He did, however, go on to say that the government remains interested in the technology powering Bitcoin. He foresees great potential for its usage in the future.
With these comments, Mr. Kumar is referring to the use of blockchain technology to aid existing banking infrastructure. In a lot of ways, the use of blockchain has already been improving traditional banking. A number of Indian banks have been using it in facilitating international transactions. The appeal for a decentralized network certainly exists within the government, just not with the current offerings on the market, or so it seems.
This move comes in the midst of mounting concerns of money laundering, fraud and lack of trust in the existing system. It is important to note that this statement is not a declaration of a ban on cryptocurrency. In fact, the RBI had themselves suggested the possibility of creating a new virtual currency back in September. This currency would be under the central bank’s control.
In the wake of the India’s sudden demonetization during October 2016, Bitcoin gained immense popularity due to sudden nationwide cash shortages. Despite the situation improving considerably over the past year, the surge in popularity had long-lasting effects. This, coupled with the sharp rise in price brought several virtual currencies, especially Bitcoin, under the scrutiny of the government. As of the time of writing this article, bitcoin’s price is rising above $7000, while it was hovering at around the $1000 mark in January earlier this year. This explosive growth has attracted many new investors into the market as well.
An Indian-backed cryptocurrency would bring all the benefits while remaining regulated and governed. In comparison, the concept of regulation goes against the principles of Bitcoin. It was envisioned to replace traditional banking systems worldwide when it was first revealed eight years ago. While its popularity has grown, not a lot of people are fully convinced of its utility yet. Mass adoption is one of Bitcoin’s biggest challenges and will continue to persist well into its lifetime.
The dismissal of Bitcoin as a mode of payment comes as a big blow to not only enthusiasts, but also several cryptocurrency-focused exchanges. Zebpay, one of India’s Bitcoin-exclusive exchanges, was quite disappointed by this news. The co-founder stated that they plan to educate the RBI and Indian government of Bitcoin’s several benefits, with hopes that they will one day accept its usage. Other exchanges have expressed similar views on the matter.
Whether Bitcoin’s future in India will open up or further narrow down the road remains to be seen.