India’s central bank, the Reserve Bank of India (RBI) has caused a stir on April 5, 2018 by announcing that it would not allow[1] regulated institutions like banks, payment service providers and non banking finance companies (NBFCs), to provide services to persons or businesses that deal with cryptocurrencies.
The RBI undertook this step due to a number of reasons which they claim as, “consumer protection, market integrity and money laundering, among others.” As the statement[2] cites:
“[The] Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.
In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs [venture capitalists]. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.”
Bibhu Prasad Kanungo, the deputy director of the RBI personally extended this message[3] on a press conference:
“Internationally, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control. And if they grow beyond a critical size, they can endanger financial stability as well.”
A huge mistake that will lead to brain drain
The reaction to India’s move has been one of dismay. Tech investor Tim Draper, who has been in and out of the Indian markets, minced no words - calling[4] the Indian government’s actions “the stupidest thing”:
“If I had a meeting with Modi, I
