It was recently reported in the Securities and Exchange Board of India’s (SEBI) 2017-18 report that it had organised study tours to various countries in order to understand how their financial institutions were regulating the use of cryptocurrencies. Teams saw how operations were carried out at Japan’s Financial Services Agency (FSA), the UK’s Financial Conduct Authority (FCA) and the Swiss Financial Market Supervisory Authority (FINMA).
This news may offer hope to those operating cryptocurrency exchanges and brokerages in India, as they have been undergoing a turbulent year. It started in April when the Reserve Bank of India (RBI) issued a blanket ban on banks trading with cryptocurrency-related businesses and people trading Bitcoin in the country, a decision which was upheld by India’s Supreme Court until a hearing that is due to take place on September 11. Since the ban’s implementation on July 5, people and companies with cryptocurrency exchanges have been unable to use them, or receive loans for them, which has caused much outcry in the community.
While this may seem like unnecessary hand-wringing on the part of the financial authorities, who seem afraid to deal with a new form of currency trading, it has its roots in well-founded concerns. The RBI’s 2017-18 annual report examined cryptocurrency regulation in Japan and South Korea. The latter is of interest, as it has had a drastic effect on people’s economic outlook in that country. From October 2017 to January 2018 the number of South Korean cryptocurrency users increased 14-fold. Many of these users have flocked to Bithumb, which is Korea’s most popular crypto exchange. Many of these users are young people, who were unhappy about economic stagnation (youth unemployment has remained around 10% for the past five years). When Bitcoin (BTC) crashed earlier this year, many of them made large losses. South Korea also suffers from a high underemployment rate, where people are working jobs for which they are overqualified, and Indian government thinktank Niti Aayog has cited large-scale underemployment as a chief concern in the country in the next few years.
It’s not hard to see how India’s financial authorities have similar concerns, as the country’s youth unemployment rate has remained at similar levels to South Korea’s for the last ten years, without signs of improving. India is also a much larger country, and is developing rapidly in many technological sectors, as well as providing its citizens with better quality and speed internet access day by day. It becomes understandable to see that the RBI is worried about what unregulated cryptocurrency use that could expand well beyond their means of control, in a country of more than 1 billion citizens.
To clarify, SEBI’s report did not state how the findings from their study tours would affect their attitude towards digital currencies, but it seems from the very fact that they wanted to see how other economically developed countries were treating cryptocurrency trading, joined with the fact that a committee established by India’s central government has been researching how best to regulate cryptocurrencies, suggests that the RBI’s ban was merely a chance for the financial authorities to catch their breath and find out how best to accommodate this rapidly growing form of digital trading.