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We read in the news recently that BitCoin, the much talked about global currency might be declared illegal in India.
In today’s environment, currencies’ values in relation to each other are a function of the trade between two countries. When the economy of one country changes for the worse, the currency takes a plunge. Ask anyone who has a 100 billion dollar note in Zimbabwe.
The advent of instruments like BitCoin mark the beginning of an era where financial instruments will replace gold and minerals as holders of value across currencies.
With BitCoin, the world got a chance to have an instrument which will hold its value, can be traded and used across geographies and whose strength is intrinsic.
Why does the RBI have a problem with BitCoin?
But the story is not so rosy. BitCoin is hit by a rule of the RBI regulations which prescribe that only banking institutions can release “prepaid payment instruments”.
In some senses, BitCoin may be considered a prepaid payment instrument because to get BitCoin “currency”, you need to initially make payment in dollars, rupees, pounds etc.
The RBI regulations do not permit this, and BitCoin became the victim of the Enforcement Directorate.
Stepping back to the genesis: the logic behind the RBI Rules
The rationale is that the currency market is atleast nominally controlled by banks and above them, by the Central Banks of different countries.
A system like BitCoin hits at the core of the banks power. When currency is created by a non-banking institution and be traded in freely, the hold of banks over money supply and demand evaporates.
Can BitCoin ever become legal in this country?
As things stand today, the chances of BitCoin being recognised by the Government as a valid means of trade and exchange are slim.
However, there is nothing which prevents people from trading and using BitCoin among themselves.
For instance, if you are performing services for me and are willing to take payment in BitCoin, that cannot really be prevented.
Remember however that if we enter into a contract which says that you will be paid in BitCoin, that contract will not be valid because the compensation is not recognised by law.
What is the consequence of this to the common man and business?
For now, the common man and business in India are largely stuck with the traditional currencies.
We feel that accepting the use of BitCoin, albeit in a limited manner is a definite step forward.
The world will inevitably move towards freedom and independence from large and unwieldy central banking institutions. Till then, hold on to those rupees.
[Guest article contributed by Niraj Patadiya of Vakilsearch]
Recommended Read : Is Bitcoin Legal in India? The Glimmer of a Bright Light
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