The Supreme Court’s order on virtual currencies reinforces and respects RBI’s authority but calls for care in its exercise. Analyse (200 Words)
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IAS Parliament 5 years
KEY POINTS
· The Supreme Court set aside a circular issued by the Reserve Bank of India (RBI) banning entities regulated by it from dealing in virtual currencies.
· Rich with details on the character of virtual currencies and their manner of regulation, as also the power and role of RBI, the judgement provides learnings on proportionality in regulatory response and governance.
· The judgement has set the stage for RBI to recalibrate its policy response towards the regulation of virtual currencies in a way so as to address potential consumer protection issues and systemic financial stability issues, as well as cybersecurity issues.
· Regulating rather than banning virtual currencies presents an opportunity for RBI to explore their potential in the present environment, more so at a time when the International Monetary Fund has advocated that central banks issue digital currency themselves.
· RBI had taken cognisance of virtual currencies and the technology that underlies them as early as June 2013, and had factored in multiple considerations on the risks and attendant regulation, including those raised by the Financial Action Task Force and the Bank of international Settlements.
· The apex court relied on an analysis of the nature and role of virtual currencies, but also acknowledged that RBI was the sole repository of the power to regulate them, even if they did not have all the features of money (medium of exchange; unit of exchange, store of value, and final discharge of debt).
· The top court had no doubt or ambiguity on the power of RBI to regulate virtual currencies, given its overall power to operate India’s currency, credit and payment systems. It even reinforced RBI’s special role in the economy.
