RBI to SC: Cryptocurrencies Are Unacceptable Under Extant Legal Regime

By Kapil Gauhar

The RBI (Reserve Bank of India) has told the Supreme Court that Bitcoin and other cryptocurrencies cannot be considered valid under the existing laws. In its counter affidavit lodged in response to the petitions followed by Sidharth Dalmia and Dwaipayan Bhowmik, India’s monetary regulator said that digital currency couldn’t be validated as a ‘payment system’ as it is a peer-to-peer electronic system that doesn’t involve a service provider.

The affidavit, filed via the RBI’s Assistant General Manager, stated, “It is submitted that crypto-currencies fall short of being true currencies. It is further submitted that RBI does not consider virtual currencies such as Bitcoins as ‘currency’ under the existing laws. There are no enabling provisions under the existing law to treat Bitcoin as a currency.”

The monetary regulator of India has cited provisions of The RBI Act and The Coinage Act to emphasise that Virtual Currencies are neither in physical form nor issued by the banks. The relevant legal provisions are not attracted to the cryptocurrencies.

The affidavit further added, the RBI is authorised under the FEMA (Foreign Exchange Management Act) to notify the instruments as valid currency. But under the current law, the requirement is that such an instrument has to possess identical or similar characteristics such as money orders, postal orders, cheques, etc.

The affidavit said, “Thus, legally it may not be possible to notify Bitcoins as currency for FEMA…Since Bitcoins and other VCs are not in the physical form and neither expressed or drawn in Indian rupees, the definition of ‘Indian currency’ cannot be made applicable to Bitcoins.”

Consequently, the RBI said to SC that they Bitcoins and other virtual currencies could neither be considered as foreign currency too since any sovereign state does not issue them.