Maintaining that bitcoins and virtual currencies were “harmful”, the Reserve Bank of India’s (RBI’s) lawyer on Thursday told the Supreme Court (SC) that the central bank had asked banks not to provide any banking services to digital currency systems as it did not want it spreading like “contagion”.
A two-judge Bench, led by Justice Rohinton F Nariman, will start hearing final arguments in the case from February 26. The top court was hearing a bunch of petitions moved against the RBI’s decision to prohibit entities regulated by it from “providing any service in relation to virtual currencies, including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies”.
“Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them, and transfer or receipt of money in accounts relating to purchase or sale of virtual currencies,” the RBI had said in its April 6 circular. The top bank’s move was, however challenged - first in the Delhi High Court (HC) and later in the SC.
The Delhi HC had issued a notice to the RBI following an appeal by one of the virtual currency companies against the top bank’s circular. The matters in the court were, however, transferred to the SC after it said it would hear all the appeals together. Hearing the appeals, the SC had refused to stay the matter but issued notices to the finance ministry, law and justice, and information technology ministries, and the RBI, and sought their reply on the issue.
The RBI has maintained that owing to “significant spurt in the valuation of many virtual currencies and rapid growth in initial coin offerings”, virtual currencies were not safe for use. It had, in 2013, cautioned “users, holders, and traders of virtual currencies, including bitcoins, about the potential financial, operational, legal, customer protection, and security-related risks that they were exposing themselves to”. After nearly three such warnings, it had decided to ask banks to stop all transactions with such companies.
Though the top bank had disassociated itself and the entities it regulates with bitcoin, it had decided to promote the use of blockchain technology. Blockchain technology is the backbone on which bitcoin and other virtual currencies operate. Finance Minister Arun Jaitley had already earlier said the Indian government doesn’t consider cryptocurrencies as legal tender and will take all measures to eliminate payments using them.
Bitcoin, a form of cryptocurrency and payment, allows two or more parties to transact with each other without the need to rely on each other or any central authority regulating the trade. The technology is yet to see mainstream acceptance despite having been repeatedly endorsed by software enthusiasts and developers.