Could the Reserve Bank of India’s Proposed Regulations Affect Virtual Currencies?
On April 26, 2017, the Reserve Bank of India (RBI) proposed guidelines, titled Foreign Exchange Management (Cross Border Merger) Regulations, 2017, to address issues related to Indian companies merging with foreign companies. As per the draft regulations:
“Save as otherwise provided in these regulations or with the general or special permission of Reserve Bank, no person resident in India shall acquire or transfer any security or debt or asset outside India and no person resident outside India shall acquire or transfer any security or debt or asset in India on account of cross border mergers.”
If a business that is operating with virtual currencies participates in a cross border merger, then it’s possible that the acquisition or transfer of virtual currencies related to the merger transaction could be subject to the limitations of the Foreign Exchange Management Act, 1999, and the proposed regulation.
Also, although the proposed regulation does not mention virtual currencies, the RBI did issue a press release in December 2013 in which it said:
“The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.”
The Indian government has struggled with what to do with virtual currencies. Currently, the RBI has not authorized or licensed any business to operate or deal with virtual currencies.
In April, the Indian government announced the establishment of a virtual currency committee, which will provide regulatory guidance and direct the government on issues dealing with virtual currencies. This move led to the creation of the Digital Asset and Blockchain Foundation of India (DABFI), a counter-committee comprised of all major cryptocurrency exchanges in India and numerous other blockchain and cryptocurrency advocates. DABFI’s main objective is to advocate blockchain and cryptocurrency use for the Indian market. However, Sandeep Goenka, co-founder of Indian exchange Zebpay, tells ETHNews that efforts to discuss policy with Indian government officials have yet to occur.
“There has been no discussion with the government so far. However, we are looking forward to meet the committee members to explain the technology and how to regulate the virtual currencies, to promote innovation and to prevent its misuse.”
On April 20, news outlets reported that the Indian government was considering imposing a tax on virtual currencies. According to the report, the government will either ban virtual currencies altogether or they will impose a tax. However, the Indian government did not release any corroborating statements and/or notifications, so this media hype should be taken with a grain of salt.
In March, Minister of State for Finance Arjun Ram Meghwal stated that the use of virtual currencies have not been not authorized by the RBI, repeating the central bank’s February 1, 2017 press release in which it cautioned virtual currency users.
Last month, the Indian virtual currency committee stated it would submit its report within three months. Only time will tell how the government will handle virtual currencies. In the meantime, the RBI has invited the public, including stakeholders and experts, to express their views and opinions on the proposed regulation. All comments must be sent by May 9, 2017, via email with the subject “Cross Border Mergers – Comments/Suggestions.”