The Reserve Bank of India (RBI) has declared that Bitcoin is not a currency in an affidavit to the Indian Supreme Court, during an ongoing legal battle regarding the ban on banks from facilitating any crypto-related activity in India. The Reserve Bank of India is completely wrong.
Specifically, the affidavit says “It is submitted that crypto-currencies fall short of being true currencies. It is further submitted that RBI does not consider virtual currencies such as Bitcoins as ‘currency’ under the extant laws. There are no enabling provisions under the extant law to treat Bitcoin as currency”. The RBI further argues that Bitcoin can’t be a currency because it has no physical form, and aren’t issued by the RBI.
The RBI could not be more wrong. Bitcoin has an excellent track record as a currency, it can be used to buy or sell anything in the world, and transactions sent with Bitcoin are instant and cryptographically secure. Combined with very low fees to send Bitcoin transactions, Bitcoin is actually better than fiat for international finance due to its speed and security. Bitcoin has 99.9% uptime and success when sending transactions, and is very reliable when used as a currency.
The RBI has led a month-long battle to stomp out Bitcoin and crypto in India, and they have succeeded at getting banks to stop offering accounts to crypto exchanges and traders. However, since Bitcoin itself is still legal in India, peer to peer Bitcoin dealing has proliferated across the country. It would probably be best for India to classify and regulate Bitcoin, like most other countries, instead of driving it underground where they have no control over it at all.
In reality, the RBI likely feels threatened by Bitcoin, since it is the first decentralized currency to spread across India, and is rapidly gaining value and use. This is unlike the Indian Rupee (INR), which has been experiencing massive inflation rates. The exchange rate has gone from INR 63 per USD to INR 72 per USD so far during 2018, yielding an annual inflation rate of 19% per year.
This inflation rate is approaching the hyper-inflation threshold, and as seen in other nations like Venezuela and Zimbabwe, once inflation begins increasing to double digits it usually continues to accelerate until ultimately a currency collapse occurs. Right now, the RBI’s biggest problem is the threat of a currency collapse, and they likely think capital outflows into the Bitcoin market will worsen the situation, which is why they are trying to make it illegal.
The collapse of fiat currencies like the INR may be inevitable, and it would be much better for India if Bitcoin stays legal so the country can adopt it over time, so the Indian financial system will still be functional in the event of a fiat collapse.
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