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RBI hasn't imposed any shadow ban on Coinbase, CEO's claim incorrect, say sources

Recently, US-based crypto exchange Coinbase's chief executive officer Brian Armstrong had alleged that it suspended its UPI payment method due to 'informal pressure from RBI.'

May 12, 2022 / 06:52 PM IST

The Reserve Bank of India (RBI) hasn't imposed any shadow ban on crypto exchanges forcing them to disable the UPI payment method, according to people in the know.

Recently, US-based crypto exchange Coinbase's chief executive officer Brian Armstrong had alleged that it suspended its UPI payment method due to 'informal pressure from RBI.'

"The RBI has not done anything or issued any instruction which goes against the Supreme Court order," said one of the people quoted above.

The US-based exchange launched its operations in India on April 7 through a mega event in Bengaluru. But, the same night, the National Payments Corporation of India (NPCI) issued a statement saying it is 'not aware of any crypto exchange using UPI.'
“So a few days after launching, we ended up disabling UPI because of some informal pressure from the Reserve Bank of India, which is kind of the Treasury equivalent there,” said Brian Armstrong, chief executive officer of Coinbase on its earnings call.


Also, Armstrong said the RBI’s move may be in violation of the Supreme Court ruling and the company is looking to work with the RBI and focus on relaunching.


However, the people quoted above said these claims are incorrect. "These statements coming from the CEO of Coinbase are incorrect and misleading," said the person quoted above.


The RBI in its circular dated May 31, 2021 had stated that in view of the order of the Supreme Court, the circular of April 6, 2018 which had imposed certain restrictions on regulated entities in dealing with virtual currencies, is no longer valid from the date of the Supreme Court judgement.


However, the central bank had cautioned the public repeatedly about the risks associated with Cryptocurrencies, saying private crypto currencies are a threat to macroeconomic stability and that the central bank has conveyed deeper concerns to the Government on these instruments.


"Considering its prime responsibility of maintaining financial stability and the risks in cryptocurrency transactions like their possible use for illicit activities like money laundering, financing terrorism, price volatility, lack of customer protection, etc. RBI has publicly highlighted its concerns," one of the people quoted above said.


In fact, one of the deputy governors of the RBI had even given an open call to ban Crypto currencies in India.


Launching a strong attack on Cryptocurrency, the RBI Deputy Governor T Rabi Sankar on February 14 said banning cryptocurrency is "perhaps the most advisable choice open to India".

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Sankar said this while speaking at the the Indian Banks Association 17th Annual Banking Technology Conference and Awards.  "We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stand up to basic scrutiny," Sankar said.

There is still no clarity on regulation of Cryptocurrencies in India. In the last union budget, the Union government announced 30% tax on private digital assets from the next fiscal year, but has so far refused to make cryptocurrencies legal or illegal.

Last year,  some banks had written to customers warning them against using credit cards for the purchase of cryptocurrencies citing RBI's April 2018 circular that called for a ban on cryptocurrencies which was later struck down by the Supreme Court.


However, on May 31, 2021, the RBI had clarified that banks and other regulated entities cannot cite its 2018 circular on cryptocurrencies as it has been set aside by the Supreme Court (SC) in March, 2020. The circular is not valid from the date of the SC order and cannot be cited or quoted from, the RBI said.

However, the central bank asked banks to carry out the necessary customer due diligence process in line with regulations governing standards for Know Your Customer (KYC), Anti-Money Laundering (AML), Combating of Financing of Terrorism (CFT) and obligations of regulated entities under Prevention of Money Laundering Act, (PMLA), 2002.
Also, banks need to ensure compliance with relevant provisions under Foreign Exchange Management Act (FEMA) for overseas remittances, the RBI said. The RBI circular, called Customer Due Diligence for transactions in Virtual Currencies (VC),  came shortly after major Indian banks have started warning customers against using their services to trade in cryptocurrencies.


(Priyanka Iyer contributed to this story)



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Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
Tags: #Coinbase
first published: May 12, 2022 06:29 pm
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