by Cindy Huynh
The Reserve Bank of India (RBI) recently banned banks from working with individuals or businesses dealing with digital currencies. On April 6, 2018, the State Bank of Pakistan (SBP) followed in same footsteps. The SBP mentioned in a separate statement that cryptocurrencies were no longer legal in Pakistan.
According to Reuters, the SBP like the RBI told banks and other financial providers to halt and refuse any customers are looking to undergo cryptocurrency transactions. Anyone looking to transfer money outside of Pakistan can also face prosecution.
SBP and RBI’s approach to cryptocurrencies appears very strict. “This seems to be a very aggressive move,” said technology law expert Namita Viswanath, a principal associate at IndusLaw, to Reuters. “Instead of the RBI taking a holistic approach and seeing how to curb potential misuse, it seems to be a rather broad-stroke approach of completely prohibiting this altogether.”
India sees Cryptocurrency Investments as Ponzi Schemes
India’s decision to prohibit banks from accepting cryptocurrencies is a surprise. According to BloombergQuint, the RBI previously issued several warnings to the public. India also previously linked cryptocurrency investments to Ponzi schemes that offered early investors unusually high returns.
As a result of the ban, as reported by Coinome, the price of bitcoin in India fell to 350,000 rupees ($5,392). The rate was significantly lower rate than the international market’s price of $6,617.
The RBI also mentioned that any regulated entities that provide cryptocurrencies need to halt their services within three months. The announcement was also a great concern for investors who currently hold cryptocurrencies and are looking for exit option.
According to Vishal Gupta, co-founder of the Digital Assets and Blockchain Foundation in India, the government’s decision has a “demonetization” like effect on cryptocurrencies. In an interview with BloombergQuint, he mentioned that the decision would have large repercussions, especially when there are at least four to five million people in India that own cryptocurrencies. It “effectively means people lose ability to conduct any trade or exchange at least in the open market.”
Pakistan Does Not Recognize Cryptocurrencies as Legal Tender
According to SBP’s statement, “Virtual Currencies, Coins, Tokens (like Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin, Pay Diamond etc.) are neither recognized as a Legal Tender nor has SBP authorized or licensed any individual or entity for the issuance, sale, purchase, exchange or investment in any such Virtual Currencies, coins, tokens in Pakistan.”
Pakistan believes that the unique operational advantages of cryptocurrencies like their high degree of anonymity can facilitate illegal activities. Other concerns include significant losses from the general public as a result of fraudsters that offer “pyramid style investment schemes” that promise high returns.
As a result of the “ambiguous nature of virtual currencies,” the government also offer no protection or recourse to individuals who have incurred a loss due to extreme price volatility or hacking and security compromises from cryptocurrency exchanges and wallets.
Urdubit, the first cryptocurrency exchange to launch in Pakistan announced on Facebook that it would shut down as a result of the government’s actions. It urged its customers on April 6, 2018, at 11:49 pm on Facebook to “please withdraw your funds as soon as possible.”