The Fate of Virtual Currencies in India - Regulation and Redefinition

Abstract

The advent of Virtual Currencies (VCs) in the global financial landscape has been a cause for concern for money market regulators and governments. This is due to the fact that VCs were designed to operate without the need for a centralized authority and consequently, regulating VCs has posed a challenge for most jurisdictions across the world. Further, due to the volatile nature of VCs and their ability to destabilize the market in the long run, most regulators have tried to nip the problem in the bud by not allowing VCs to operate in a manner similar to fiat currency. However, while VCs do not have legal tender status which is guaranteed by a centralized authority, they operate in a manner that is very similar to generic currency. They may be used as a medium of exchange, a unit of account, a store of value, and may be used to as a method for the discharge of debts. That being said, VCs have been restrictively defined by regulators to ensure that they may not function as money to ensure that they cannot turn into a valid medium of exchange that replaces the traditional fiat currency. In India, a similar trend is reported with the RBI prohibiting the entities regulated by it to enter into or facilitate transactions that involve VCs. Furthermore, the legislature is also considering a law to prohibit the use, issuance, transfer, mining, generation, disposal or sale of crypto-currencies within the territory of India. The present paper seeks to determine and analyze the true nature of VCs from a legal viewpoint. To that end, Part I introduces the main issues that are to be dealt with in the present paper; Part II of the paper is a cross-jurisdictions analysis of how VCs have been treated and defined by regulators, legislators and courts across the world; Part III deals with the treatment of VCs in India by the Government and the RBI, with a special focus on the Supreme Court’s judgement in Internet and Mobile Association of India v. Reserve Bank of India to determine the legal definition and status of VCs in India; and Part IV concludes.