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Reserve bank of India

India’s Reserve Bank Begins its CBDC Pilot Program

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On Tuesday, India’s central bank launched a pilot program for its virtual currency, allowing a select group of banks to settle secondary-market trades in government securities.

Data from Clearing Corp. of India Ltd. shows that 7.38% of the 2027 debt and 7.26% of the 2032 bonds were among the first to be traded using the new form of money. Nine banks are taking part in the trial. Within a month, the Reserve Bank of India plans to test the e-rupee for retail use in a few key locations.

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India’s CBDC rollout comes a day after Singapore

A day after Singapore’s monetary authority announced trials of a digital version of its local dollar, the limited roll-out was announced.

The central banks of China, the euro area, the Bahamas, and other nations have been experimenting in this area while numerous others are searching for ways to deal with the threat that private digital currencies portray to financial stability.

The RBI previously stated in a concept note that it “will provide the users the same experience of dealing in currency in digital form, without any risks associated with private cryptocurrencies.”

While offering the advantages of virtual currencies, central bank digital currencies will also guarantee consumer protection “by avoiding the detrimental social and economic consequences of private virtual currencies.”

Among the banks participating in the pilot are the Union Bank of India, HDFC Bank, ICICI Bank Ltd., Kotak Mahindra Bank, Yes Bank, IDFC First Bank, State Bank of India, Bank of Baroda, and the Indian division of HSBC Holdings Plc.

India has long been formulating its CBDC plans. The nation’s feelings toward cryptocurrencies are mixed. A complete ban on digital assets is what the Reserve Bank of India wants. On the other hand, the country levies a 30% tax and 1% TDS on cryptocurrencies.

Blockchain technology has been warmly welcomed and adopted by a number of government agencies, despite the fact that the country is not particularly accepting of cryptocurrencies. After years of study, the RBI released a CBDC concept on October 7, 2022.

Now that the country has rolled out its CBDC pilot, its stance on crypto is envisioned to be changed in the near future.

Yes Bank Disaster Can Serve as a Perfect Example of Why India Needs Crypto

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Financial ecosystems worldwide have been in a state of crisis since the Coronavirus outbreak. When this was happening, the Indian financial space was rocked by the news of the bankruptcy of Yes Bank and the subsequent takeover of State Bank of India [SBI].

Some people now believe that Indian crypto proponents can use the Yes Bank disaster as an example of how fiat structures can fail. They can also argue that such a high debt rate would never have been accumulated in a cryptocurrency-based environment.

In the past couple of months, India has seen a large chunk of its population shift to digital platforms. The younger population uses applications such as GPay that rely on the UPI system. At the same time, a lot of people have lost confidence in the banking system due to fumbles like the Yes Bank scenario.

Just recently, Yes Bank broke down after owing billions of dollars to debtors. The bank has told its depositors after the last count that it will return approximately $20 billion in cash. Amid all this, the Indian government will suggest a move to blockchain technology to better protect the finances of citizens.

The Supreme Court of India recently struck down a ban against cryptocurrencies, much to the surprise of crypto proponents. Right after that decision, the Reserve Bank of India argued that digital assets should remain banned because of its role in funding online terrorism. What they do not realize is the sheer opportunity that lies ahead of them with blockchain technology.

Once Yes Bank sees all its bank holders leave, other banks would require an increase in liquidity to handle the increase in customers. This liquidity factor would serve an important role in a banking system catering to the younger generation. Some supporters of the digital asset industry stated that the RBI could play an active role in regulating crypto transactions.

India could take inspiration from China to establish its digital currency. The Xi Jinping led country plans to launch a CBDC in the coming months, much to the anticipation of other nations as well. China was also in the limelight when the government filed multiple patents related to blockchain technology.

The good news was that some organizations in India had already begun supporting blockchain projects. A couple of weeks ago, Tech Mahindra was involved in the release of a blockchain venture in the state of Telangana. The state officials revealed that they planned to convert the area into the Blockchain capital of India.

The Bank for International Settlements [BIS] has identified multiple locations across the globe for a possible crypto setup. If India plays its cards right, it might well be able to join that club. At the time of writing, the BIS had surveyed cryptocurrency projects in over seventeen countries. The rapid development in the cryptocurrency industry has to be something India needs to be a part of. Else, companies like Facebook would run away with the baton to the finish line.

Supreme Court of India Lifts the Ban on Banks Facilitating Cryptocurrency Trading

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The Supreme Court of India has eventually lifted the curb placed by the Reserve Bank of India (RBI) on digital currencies. On March 4, the prime court in the land struck down  RBI’s ban on banks providing financial services to crypto related businesses; describing it as illegal.

Moreover, the court verdict was delivered by justices Rohinton Nariman, S Ravindra Bhat, and V Ramasubramanian according to a news report by litigation news site Live Law. The Indian Central Bank (RBI) foisted a ban on the country’s banks from offering financial services to cryptocurrency-related firms. This was back in April 2018 with the rule coming into effect during June of 2018 as well.

The news of the lifted ban was well received by the cryptocurrency community in India. According to the Director Of Technology at Tokenyz Ventures, Samuel Benson:

“It’s a very positive sign that has come through, something that we have been waiting for and expecting for two years now. Most of the infrastructure and bits and pieces towards the cryptocurrency was already built out over the last few years.”

RBI’s Ban Crippled Crypto Industry in India

Following the news by RBI to curb cryptocurrencies back in 2018, the industry was left crippled after showing signs of big progress. The ban led to a very significant drop in cryptocurrency trading in India. Multiple exchanges were forced to shut down the business and some had to relocate to more crypto friendlier nations.

However, following petitions by both industry players and the public, a legal action challenging RBI’s ruling was filed before the Supreme Court. The lawsuit was filed by the Internet and Mobile Association of India (IAMAI) which also represented various exchanges. The association argued that trading digital currencies while there is no law inhibiting it was a ‘legitimate’ business practice according to the constitution. It said that the RBI should not deny such businesses or individual banking services.

Nevertheless, Indian Central Bank in its defense, argued that it has always maintained consistency in opposing; the introduction of other payment systems that undermine the traditional banking system.

A Landmark Ruling for the Indian Cryptocurrency Industry

Well, it might have taken a long time with the Supreme Court postponing hearings and judgment but it has finally dawned. This appears to be a landmark ruling for all the players in the Indian cryptocurrency sector. They can now approach banks for financial services which are very significant in running an exchange firm.

Furthermore, the lawyer arguing against RBI’s controversial ban questioned RBI’s authority in regulating virtual currencies. The RBI responded that it had not generally banned cryptocurrencies in India, but it only imposed banking restrictions on the sector. We all understand banking services are crucial to run cryptocurrency business. A firm has to deal with both fiat and crypto and RBI’s move to deny the industry banking services; it was simply a death sentence to the whole industry.

In the meantime, the government has appointed a panel and tasked it with studying the cryptocurrencies industries generally. The panel has proposed banning all privacy-oriented cryptocurrencies; and even went on to recommend hefty fines and a jail term of up to ten years; for those found guilty of dealing with crypto.

In conclusion, the Israeli Attorney General has submitted a similar case in court; against the ban of banks from providing financial services to cryptocurrency entities. The Attorney General wants money laundry cases to be handled individually, instead of freezing the whole industry.

Reserve Bank of India Claims ‘Crypto Is Not Banned, Banks Just Cannot Use It’ Before January 28 Hearing

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India has been a major hotbed for cryptocurrency discussions within the South Asian region. The country has repeatedly held a negative stance against digital assets despite several citizens using crypto on a day to day basis.

In a new twist to the Indian crypto saga, it has been revealed that the Reserve Bank of India [RBI] had not banned cryptocurrencies from the country. It had rather asked institutions like banks do not deal with Bitcoin and other altcoins.

The new information came to light on the back of a petition filed by the Internet and Mobile Association of India [IAMAI]. The IAMAI also includes some cryptocurrency exchanges, which is why they took this initiative. The central bank clarified that its 2018 circular was aimed to regulate cryptocurrency trades within the country and not ban them. The affidavit from the RBI read:

“Firstly, the RBI has not prohibited VCs (virtual currencies) in the country. The RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs… The RBI has been able to ringfence the entities regulated by it from being involved in activities that pose reputational and financial risks along with other legal and operational risks”

Some legal experts said that the stance taken by the RBI could be a weak one if it is not backed up by facts. One of the major concerns voiced by the RBI and the government of India was that virtual assets could be used to fund terrorism and drug trafficking. The IAMAI had blasted the RBI for curbing the development of an industry that was thriving in other regions and even contributing to the economy.

According to India’s principal bank, virtual assets will not be allowed to facilitate cross border transactions in the country. If any service is found to do so, stringent actions will be taken against them.

The 2018 discussions between the Reserve Bank of India and the government also included amending certain rules to exclude the functioning of crypto. The government suggested that the Foreign Exchange Management Act [FEMA] be changed to oversee digital asset developments.

The FEMA is an act established by the Parliament of India in 1999, the same time period when India first opened up for globalization. The main aim of the act is to make offenses related to foreign exchanges into civil offenses.

The Supreme Court of India had recently wrapped up the first three days of a landmark hearing related to the crypto ban. The proceedings went on from January 14-16 where the crypto side was defended by Ashim Sood, IAMAI’s legal counsel.

The court did not come to a final decision on the third day and has scheduled another hearing for the 28th. During the hearing last week, Sood argued that a ban cannot be imposed simply because of a lack of regulations related to cryptocurrencies.