Cryptocurrency adoption in India continues to accelerate, yet the nation’s central bank, the Reserve Bank of India (RBI), is holding firm on its stance against it. Recently the RBI issued a “Regulatory Sandbox” of promising fintech developments that it considers worthy of testing and exploration. The document expressly puts cryptocurrencies on a “negative list” of products and services that may not be tested by financial institutions. This move is only exacerbating the challenges faced by crypto-based companies in India, and is adding to a chaotic and confusing atmosphere for supporters of blockchain development.
The RBI has already banned banks from cooperating with companies that operate in the crypto space, which has caused significant hardship to Indian exchanges. For example, Zebpay and Coindelta have both been forced to shut down, and Unocoin has announced that it will lay off half of its workforce. This ban, according to the RBI, is in place to protect consumers, yet is widely criticized as a tool to preserve the RBI’s own hegemony over the nation’s money supply.
Ironically, the Regulatory Sandbox praises blockchain technology and smart contracts as “innovative,” which may be further explored and tested. This obvious contradiction with its anti-crypto stance indicates that the RBI officials believe that closed-source, permissioned blockchains are a suitable alternative to permissionless platforms. An alternate, and perhaps more likely explanation, is that the leaders of India’s central bank have a very poor understanding of the very distributed ledger technology they are charged with regulating.
Among the Indian public, frustration is growing over their leaders’ deliberate attempt to thwart access to the crypto space. A number of street rallies have taken place by blockchain advocates, most recently in Bangalore on March 30th. Also, the banking ban is doing little to thwart crypto adoption, with customers merely moving to foreign exchanges as those based in India close. In fact, Coinbase is openly ignoring the ban and has recently announced plans to move into the Indian market.
Adding to the confusion is the Indian Supreme Court’s reticence in addressing the legal status of cryptocurrency. It has ordered the RBI to issue clear policies on crypto use, yet has repeatedly granted more time at the behest of central bank officials. The first deadline to clarify crypto’s status was February 25th, which was extended to March 29th. However, on that day the high court granted another extension until July 5th.
The situation in India is a clear reflection of the challenges faced by governments and central banks around the world over blockchain’s revolutionary potential. Simply put, it is difficult, if not impossible, for any single nation to regulate decentralized blockchain assets such as Bitcoin or Ethereum. Thus, the blockchain revolution represents an existential threat to fiat currency and the present global financial framework. The RBI seems to understand this fact, which explains its refusal to embrace the technology.
India’s situation is hardly unique, and the RBI’s response to growing crypto adoption will likely be emulated by its counterparts in many other nations. Nevertheless, the RBI cannot hope to block the adoption of cryptocurrencies by issuing nonsensical, unworkable regulatory policies. Decentralized blockchain platforms are well on their way to mass adoption, with or without the blessing of the world’s central banks. It would thus be far more productive for the leaders to embrace the blockchain revolution, rather than oppose it.
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