The central bank, through senior advocate Shyam Divan, argued that though there was no formal ban on cryptocurrencies under any law in existence in India, it had consistently been warning all those dealing with virtual currencies of the risks inherent in them.
The RBI circular of 2018, he said, was part of a conscious policy decision of the regulator to ensure that the banking system was not compromised by any other payment system involving cryptocurrencies, including bitcoins which showed extreme “volatility”.
He was arguing before a threejudge bench led by Justice RF Nariman, which is hearing petitions filed by currency exchanges dealing with bitcoins. Justices Aniruddha Bose and V Ramasubramanian are also part of the bench.
The lawyer dubbed the 2018 circular as “very proportionate and calibrated”.
Currency exchanges had argued that the RBI ban on accessing banking channels was beyond its remit. Arguments will continue on Thursday.
The Internet and Mobile Association of India, representing various cryptocurrency exchanges, had at the last hearing argued that trading in cryptocurrencies in the absence of a law banning those was a “legitimate” business activity under the Constitution. The RBI could not have denied them access to banking channels to carry on such business, it said.
Advocate Ashim Sood had argued that cryptocurrencies were more like “commodities” rather than currency, and that it was beyond the RBI’s jurisdiction to regulate the field.
The RBI had in a circular issued on April 6, 2018, directed that all entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling those.
Regulated entities that were already providing such services were told to exit the relationship within three months.
The RBI had earlier issued circulars on December 24, 2013; February 1, 2017 and December 5, 2017, cautioning users, holders and traders of virtual currencies, including bitcoins, regarding various risks associated in dealing with such virtual currencies. The April 6 circular was later challenged in the top court.