Cryptocurrency transactions opposed to protect integrity of banking system; no formal ban issued: RBI tells SC

The Reserve Bank of India (RBI) said in the Supreme Court that it always opposed the use of any other payment modes and discouraged banks from using transactions involving cryptocurrencies, said a news report.

While defending its 2018 circular asking banks to stop cryptocurrency transactions, the RBI told the apex court that it opposed any undermining of the integrity of the banking system through the use of other payment systems, said a report in The Economic Times.

Senior advocate Shyam Divan, representing the RBI, 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 currencies, the report said.

Representational image. Reuters.

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Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of the currency units and verify the transfer of funds, operating independently of a central bank.

The RBI said it had not banned cryptocurrencies such as Bitcoin in India, but only ringfenced regulated entities like banks from risks involved in the trading of virtual instruments, reported Moneycontrol.

The central bank said this in the Supreme Court in a response to a petition filed by the Internet and Mobile Association of India (IAMAI), which wanted it to reconsider its 2018 circular directing regulated entities not to deal in cryptocurrencies, the report said.

In July 2018, the Supreme Court had refused to stay an RBI circular prohibiting banks and financial institutions from providing services in relation to cryptocurrencies.

The top court was hearing a plea filed by IAMAI seeking a stay on the RBI circular claiming it was "arbitrary, unfair and unconstitutional".

The association has contended that the RBI circular has barred all the entities regulated by the apex bank from providing services to any individual or business dealing in virtual currencies like cryptocurrencies.

In 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.

Technological innovations, including virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system, RBI said after its first bi-monthly monetary policy review of 2018-19.

— With PTI inputs