The Reserve Bank of India fears its recent stern policies towards cryptocurrency may be a mistake.
The RBI yesterday published its annual report in which it said there were fears that crypto was being pushed into the shadows to the extent where authorities would struggle to keep a track of digital trade.
The apparent u-turn comes a few months after the RBI and the Indian government sanctioned a mass crackdown on crypto exchanges and trading sites.
“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash,” said yesterday’s report.
“Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT (anti-money laundering/combating the financing of terrorism) and taxation issues, require close watch.”
Experts say the statements from the report disguise a fear that India’s financial regulators have made a mistake in clamping down on crypto and they now feel they should be embracing the technology.
“The report would have you believe that the authorities are keen to bring cryptocurrency and the related technology out of the dark so that they can police it better,” said analyst Arnab Sandhu.
“But reading between the lines they’ve clearly taken a good look at themselves and their knee-jerk attitude and said ‘whoops – we may have made a hasty mistake here’ before trying to reverse the damage.”
Earlier this year, the RBI instructed lenders to shut down the accounts of all exchanges involved in cryptocurrency within three months.
This move pushed many account holders down the peer-to-peer path in order to bypass the legislation – a move which has put many of them below the RBI’s radar.
“What the RBI has definitely learned from this is that cryptocurrency and the industry surrounding it could – and should – be huge business for a technologically-minded country like India,” added Sandhu.
“Their fear, clearly, is that they’ll not only push the exchange and the talent into the shadows, but they may be forcing potentially huge employers to set up their operations outside the country.
“The feeling I’m getting is that they fear a grave mistake has almost been made, and they must rectify this as soon as possible.”
Praveen Kumar, CEO of Belfrics – a Malaysia-based exchange which hosts operations in India – says the situation could easily have been avoided if the RBI had worked a little harder to understand cryptocurrencies.
“The exchanges have been following a robust know-your-customer procedure and enforcing only bank-related transfers which could have helped to keep a tab on the money trail,” he told Quartz India.
The current unease will come to a head in New Delhi on September 11 when a supreme court hearing will make its decision on enforcing the ban on cryptocurrency exchanges.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.