Updates on RBI vs. Crypto hearing in Supreme Court
RBI vs. Crypto case saw an eventful day at the Supreme Court of India yesterday. An exciting turn of events is expected to be witnessed today at the court room.
We at CryptoNewsZ resume our coverage of the crypto hearing in Supreme Court of India
Stay tuned for the latest updates:
January 23, 2020 - RBI vs. Crypto Updates
ANALYSIS: Advocate Sood ended the day with passionate remarks justifying his contentions as to why RBI had no grounds for its actions. As things stand, the case for freedom of crypto related activities in India has been undeniably strong. The judges have shown an open mind when it comes to the advantages that Crypto and the blockchain tech can have. We at CryptoNewsZ believe that there is a good chance that the verdict will swing in favor of #CryptoFreedom in India. Stay tuned in for more!
Counsel for crypto freedom in India further argues that since it conducted no research, RBI’s claims that Crypto impacts regulated payment systems are entirely baseless. There is no reasonable explanation behind RBI’s actions against Crypto.
Counsel submits an Annual Report by RBI that is available in the public domain. Despite RBI’s directive discouraging VCs, the report states that there is negligible risk from cryptocurrencies. RBI has clearly done little research on the merits of digital currencies and made a haste judgement in banning it in the country.
Sood points to the documents provided by RBI backing its consideration of the decision to ban crypto and argues that they are utterly insufficient to reasonably conclude that VCs are a danger to the financial ecosystem.
Sood states that according to case law, it has been established that pre-emptive action can only be taken in instances where there an imminent danger has been clearly established. It cannot be a result of mere conjecture, as was the situation in this case.
Sood adds that in any case, terrorist financing is not satisfactory reason for discouraging crypto. There are other, traditional and more commonly used methods employed for money laundering and financing terrorist organizations. Counsel argues that terrorist financing was merely used as an excuse by the RBI.
Arguments heat up as discussions move to the issue of terrorist financing. Sood points out that any and all technology can potentially be used to cause harm. However, simply banning the tech was not the answer. Certain regulations (such as KYC standards validated by a central authority) can be implemented to minimize negative uses.
RBI’s 2016 decision was taken as a consumer protection measure. However, Sood argues that the documents that it has submitted backing this decision do not sufficiently justify the act. Some of the documents that RBI submitted as evidence that of its research into whether crypto was a legitimate commodity were not even in existence when RBI made its decision. This clearly indicates that RBI had no intention to even consider crypto’s merits as a medium of exchange.
The trial gets heated as Advocate for IAMAI, Sood, continues to argue passionately. He asserts that RBI has provided absolutely no evidence to support its claim that crypto has an adverse impact on the traditional regulated payment systems. The IMC 2019 report that RBI submitted in relation to its arguments does not provide any ground for the claim either.
Furthermore, Counsel Sood points out that RBI has not presented any set of conditions under which crypto would be banned but issued a blanket prohibition on the channel. This indicates that little, if any, consideration was given to the decision.
Replying to RBI’s statements regarding its careful deliberation before taking action against crypto, Counsel argues that there is no proof of this claim. Documents submitted by the RBI only go to show that there exists research on the issue by 3rd party entities. There is no satisfactory evidence that the merits of cryptocurrency were studied independently and extensively by the RBI. Any determination regarding the legality of cryptocurrency, or possible detrimental effects that it may have, can only be made once RBI has thoroughly understood the technology’s uses.
Responding to RBI’s claims that it had the necessary authority to act against crypto, Sood contends that the law does not support capriciousness or arbitrariness. RBI’s statutory powers do not clearly state that it has the authority to ban an entire banking channel.
Sood concludes that crypto and blockchain are two sides of the same coin. It is not possible to separate one from the other. Blockchain has been demonstrated to have revolutionary social impact – healthcare, management of records, education. But it is crypto which make it a viable instrument for change.
Counsel for crypto elaborated by providing the example of Ethereum. Ether is the fuel that allows efficient maintenance of the Ethereum platform and provides a way to manage the costs involved in the system.
Sood elaborated that crypto and the blockchain technology have excellent potential for investment. However, blockchain tech can only be harnessed through the use of digital currencies. VCs provide the fuel that drives blockchain.
Counsel for crypto freedom, Advocate Ashim Sood, argues that bartering is lawful under the Goods and Services Tax Act. Therefore, there is currently no legal ban on the use of crypto as an instrument of exchange.
RBI Counsel concludes his arguments with remarks that there exists ample evidence to back RBI’s actions discouraging crypto. It has carefully followed developments in the field and that its caution in relation to crypto transactions is warranted.
The trial recommences. The Counsel for RBI has continued his arguments where he left off by citing an additional judgements in support of his contentions regarding the limited scope of the judiciary’s jurisdiction over economic policy related matters.
RBI cites numerous additional judgements to back its contention that as an expert body, RBI has complete authority over matters under its jurisdiction. It’s statutory powers include that to take preemptive action if necessary.
RBI Counsel argues that as an expert body responsible for the financial stability of the country, all matters related to financial and monetary policy are under its constitutional powers. The Court has limited powers in terms of intervention in such matters. Counsel proceeds to cite critical verdicts supporting this claim.
After a brief discussion amongst the panel of Judges, the discussion moves the advantages of being an honest contributor to the blockchain technology. Judges highlight the fact that working truthfully with the tech is generally more profitable than using it for nefarious purposes or attempting to tamper the chain. They cite the example of Bitfury and its work in the blockchain ecosystem. They go on to elaborate the benefits of Blockchain tech and advocate the values of its feature of immutability.
However, Judges call attention to the fact that while prices may have reduced in the immediate aftermath of RBI’s initial directive, data showed that they increased dramatically in 2017 and again declined in 2018. Hence, prices were clearly affected by global trends and not solely by RBI’s directive. The RBI Counsel acknowledges that prices and volume of crypto trades are affected by a number of other factors – both national and global.
RBI Counsel disputes that although crypto transactions continued, they had certainly been reduced in terms of volume. States that in the aftermath of RBI’s 2016 circular discouraging any sort of crypto activity, there was a sharp decline in the prices and volume of transactions conducted.
Hon’ble Justice Rohinton Fali Nariman points out that the RBI’s directive had merely caused the business involving crypto exchanges to suffer while the trading of crypto remained active in the country.
In reply to the judges’ questions, RBI counsel replies that the central bank discourage such transactions. Although the directive is vague, banks are expected to use their judgement in determining such trades and preventing them.
Supreme Court Judges presiding over the case seek clarification from RBI counsel regarding the central bank’s directive stopping banking institutions in the country from serving crypto exchange entities. The panel questions whether the RBI directive also prevents transactions between two private actors? If yes, how can banks determine sources of transactions without conducting appropriate investigations?
RBI Counsel commences arguments with a discussion of existing peer-to-peer exchange programs that are operating in India. He highlighted that crypto exchange platforms allowed consumers to transfer funds freely across international borders. Therefore, their cybersecurity risks could not be denied. Counsel argued that crypto poses a risk to the Foreign Exchange Monetary Act (FEMA), Combatting of Financing Terrorism (CFT) guidelines and Anti-Money Laundering (AML) standards.
RBI Counsel maintained that the central bank viewed Crypto as a digitized system of payment, not a technology or a points-based scheme. Being backed by peer-to-peer consensus-based algorithms instead of governments made it volatile and a danger to the financial stability of regulated payment systems.
Yesterday, counsel defending crypto contended that discouraging or banning crypto activity was not under RBI’s domain. Virtual currencies offer an entirely new banking channel, which the RBI has no authority to prohibit.
To recap: Legal counsel for IAMAI concluded his arguments yesterday defending crypto freedom in India. He argued that it was unreasonable to ban crypto activity when similar digital schemes (like air mile programs) could operate unrestricted. While risks of terrorist financing and money laundering exist, banning all crypto related activities was not the solution.