A Canadian resident Venugopal Badarawada has sent a notice to RBI seeking clarifications on RBI’s stand on Bitcoins, and opened a window of opportunity for RBI to come out with a clarification on its stand on Bitcons.
The earlier press release warned the public of the possible consequences of violation of law as well as the financial risks involved in dealing with Bitcoins. The warning given to public was in order since it is the duty of RBI to keep the public warned of such risks.
However while releasing the advisory, RBI also stated that they may review the regulatory structure by saying
“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.”
It is the uncertainty that RBI has introduced through these lines that has invited the action of Mr Venugopal.
The undersigned has already clarified that at this point of time, Bitcoin is an “Electronic Document” as per Information Technology Act 2000/8 (ITA 2008) and hence carries “Legal Recognition”. If this “Legal Recognition” has to be removed, it would be necessary to amend ITA 2008. It is in this context that the undersigned has stated that RBI has no rights to ban Bitcoins.
This “Legal Recognition” of Bitcoins as per Section 4 of ITA 2008 makes it an “electronic document” which can be produced as evidence in a Court of law to whatever it represents. Whether this electronic document is a “Currency” or a “Commodity” or a “Derivative” is left to the community to decide based on their perception on its usage. For want of a better description, it is better to consider Bitcoin (as in deed any Crypto Currency) as a “Commodity in electronic form which the public may use for any legal purpose”. No other conclusion is logical.
It is true that Bitcoins can be used for money laundering and so is any other currency or commodity. If RBI is concerned about money laundering usage of Bitcoins, it has to stop at giving such an advisory and say that Bitcoin is otherwise not illegal to mine, possess and transact.
RBI’s vagueness is detrimental to the constitutional right of an individual in India to carry on a business of his choice. If he wants to do business with Bitcoins, he has to presently live under the constant fear that RBI may at any time change the regulation and more so with retrospective effect and render him a criminal ab-initio. Hence RBI’s silence cannot be considered acceptable.
Since there is no other way that the public can force RBI into giving a clarification, Venugopal has rightly declared his intention to approach a Court to direct RBI to clarify.
In case RBI now comes up with a view that Bitcoin is illegal, it has to state the ground under which it is considered illegal. Merely the fact that the commodity is used by some as “Virtual Currency” may or may not be considered as sufficient ground to ban it. If however RBI takes such a stand the Courts can be moved to clarify if RBI is right. It is only when the Supreme Court gives its clarification on the matter that the issue would be settled.
Let’s wait for the RBI’s reply and further action that M Venugopal contemplates.
Naavi
Updated on 3rd Feb: Reference in ET
Hello Vijay,
I will disagree with your view. The reasons are as follows:
1. Yes, bitcoins are electronic record, but the issue is whether the fact of it being an electronic record makes it a legal tender. The answer should be no. Not sure which part of the IT Act deals with currencies.
2. RBI can and has given its views on the bit coins being a legal tender. Agreed, they need to do more work and clarify, but preliminary views are relevant. For instance, what is the underlying asset backing the bitcoins? In the event same is relevant then can we have a person printing Rs. 100 on a piece of paper and call it Rs. 100 note.
3. Also, the constitutional right to do business is subject to reasonable restrictions.
4. Please note that RBI does not seem to be that anti technology. For instance things like mobile wallet are in existence and RBI is regulating it.
This is to initiate a healthy debate with a team and person whom i closely follow and admire.
Regards,
Prashant
Dear Prashant
My question is “Who says Bitcoin is a legal tender”? A legal tender is one backed by the Government promising that it cannot be refused in acceptance of a payment. Bitcoin promises no such guarantee. If two individuals or a group of individuals agree amongst themseleves to use Bitcoin for exchange of services, it does not make it a “Legal Tender”. Hence it is not a “Currency” at all. I agree that the “Perception” may be different. But legally how do you ban a commodity as a “Currency” based only on “perception”?
Dear Vijay,
I guess we agree bitcoins may be used as consideration for commercial transactions. If two people agreeing satisfies all conditions. Then how is bitcoin different from a mutually agreed form of exchange of value like say hawala.
The issue is never perception. Validity must be established based on the four corners of law. The concept of legal tender is based on law and not perception. If bitcoins satisfy it, it is legal and is a currency and may be used for the payment of consideration. But if it is not then I am afraid RBI should put an end to it or stipulate reasonable guidelines to make it a legal tender. We as civil society should help them in arriving at technical measures to make it a form of currency having legal validity. Notwithstanding, my comments above RBI should not write it off on mere preliminary views.
Is there a legal definition of “hawala”? What you are implying appears to be only a “Barter”. When does a “barter” become a “hawala”?
Hawala is just an example connoting a method agreed by 2 people, without any legal intervention. The idea is that bitcoin can bit coin being a barter may be legal. Please note that even in case of a barter the consideration has an underlying monetary value. That monetary value is legally established. If bitcoin is to be allowed merely on what two people feel, how would we establish the underlying monetary value and how legal it may be???
My humble opinion is as under:
If in a barter there is an underlying consideration which the parties agree to, they can also agree on a notional consideration for a barter involving bitcoins.
When bitcoin is used for a digital service there is an underlying value which is the value of the service which is often also quoted in terms of other currencies. Once the merchant parts with goods and accepts bitcoins, it is his botheration of what happens to this bartered asset. He can immediately exchange it for legacy currency in which case he will get as much of legacy currency as he would have got for his service if he had used other currencies. If he wants, he can hoard the bitcoins for speculative profit. The currency regulator has no need to worry about it.
What the regulator has to worry about is possible loss of tax revenue or use of bitcoins for criminal activities. Once bitcoin is considered as a commodity, there is a way out for addressing these concerns. If some body accepts bitcoins which were used for any illegal purpose earlier in the chain of transaction, the acquirer runs the risk of taking on the defective title as well. Law can catch him if required.
However acquiring it from a known person has low legal risk.. as much as a pawn shop accepting jewellery as security for loan. I do agree that when bitcoins are exchanged for dollars or other foreign currencies then there is a different problem of violating FEMA.
Whether it is FEMA or PMLA, bitcoin usage has to be compliant with the laws. But that does not mean that some body cannot mine it or use it for exchange in a legally valid contract. Currency act only applies to some body trying to pass off a commodity as “Legal Tender”. It cannot apply to a unit of barter commodity which is a non legal tender … unless of course law is changed now.
Will there be a day when public will all accept only bitcoins and no body wants INR or Dollar? I think those days are far off. If however such a long term prospect can arise, then it is for RBI to think of a strategy to be prepared to meet the challenge. I suppose I have indicated what RBI can do to get the better of the Crypto Currency development in some of the earlier articles.
Good point. Most countries have been categorical leaving no room for uncertainty. RBI should clarify this.