The response to a Right to Information (RTI) request has shown that the Reserve Bank of India (RBI) is not privy to the nuances of cryptocurrencies and that it did not form any internal committees or working groups for the purpose of studying the merits and detrimental effects of Virtual Currencies (VCs) on the economic ecosystems.
The RTI response was submitted to the Supreme Court by the Advocate for IAMAI, Ashim Sood, during his counter-arguments in the RBI vs. Crypto hearings as evidence that RBI did not have reasonable grounds for acting preemptively to ring-fence cryptocurrencies and discouraging all crypto-related economic activities.
Arguing passionately, Sood contended that since the RBI had conducted little deliberations on whether crypto could be considered an alternative form of investment, similar to conventional stocks and bonds, its action was entirely unjustified.
Sood further argued that RBI did not sufficiently consider if crypto was a legitimate commodity. The documents that it submitted in support of its decision consisted to outdated research by external third parties, rather than RBI’s independent investigations into the issue. Many were not even produced until after the RBI had issued its directive.
Since little quality research was conducted, RBI could not reasonably conclude that VCs have a detrimental impact on conventional, regulated payment systems or that they pose a risk to the financial stability of the country.
A decision prohibiting an entire banking channel can only be taken after an extensive study which concludes that digital currencies and payment systems pose an undeniable risk to the market stability and integrity. Rather, Sood contended, the RBI should carefully study the crypto domain to come up with a set of regulations that can encourage legal and taxable crypto transactions.
Introduction of stringent Know-Your-Client (KYC) protocols that are validated by a central regulatory authority could significantly reduce, if not eliminate, risks posed by the anonymous nature of crypto transactions. It would also help lessen the cybersecurity risks presented by free flow of digital currencies across international borders.
Sood concluded his remarks today by contending that RBI made the decision to ban crypto trading and transactions on the basis of mere conjecture and therefore, its decision cannot stand. He is expected to continue to present his counter-arguments when the RBI vs Crypto Supreme Court hearings resume on Tuesday, January 28.