NPCI Refuses To Ban Cryptocurrency Trades


    In News

    National Payments Corporation of India (NPCI) has refused to ban cryptocurrency transactions and has instead put an onus on banking institutions whether to ban crypto trades or not.

    • The NPCI runs Unified Payments Interface (UPI) system (instant real-time payment system) in India.


    • The NPCI told banks that they must make the decision based on the advice provided by their own legal and compliance departments.
    • NCPI’s decision comes at a time when banks are refusing to accept payments for cryptocurrency deals.
      • As close to half a dozen banks have given directions to payment gateways to blacklist merchants who actively trade cryptocurrencies
    • The National Payments Corporation of India’s decision is based on the ruling passed by the Supreme Court in March 2020.


    • It is a digital currency that can be used in place of conventional money.
    • In cryptocurrencies, cryptography is used to secure and verify transactions. It is also used to control the supply of cryptocurrencies.
      • It is supported by a decentralized peer-to-peer network called the blockchain.
    • First cryptocurrency: Bitcoin, launched in 2009 by Satoshi Nakamoto.


    Present Status in India

    • 2018: RBI banned banks and other regulated entities from supporting crypto transactions.
    • 2019: Inter-ministerial committee recommended ban all private cryptocurrencies.
    • 2020: Supreme Court struck down the ban as unconstitutional.
      • Court’s observation: RBI has not come out with a stand that any of the entities regulated by it namely, nationalised banks/scheduled commercial banks/cooperative banks/NBFCs, have suffered any loss or adverse effect directly or indirectly, on account of virtual currencies (VCs).
        • Hence, the RBI circular is “disproportionate” with an otherwise consistent stand taken by the central bank that VCs were not prohibited in the country.
        • The court found that the RBI did not consider the availability of alternatives before issuing the circular.
        • The court referred to the Centre’s failure to introduce an official digital rupee despite two draft Bills and several committees.
    • 2021: Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 introduced.
      • Under this plan to ban private digital currencies, favour RBI backed currency.
      • A 3-6 month exit period prior to banning the trading, mining and issuing of cryptos.
    • Finally, Cryptocurrencies, though unregulated, are not illegal in India.

    RBI and Digital Currency

    • Exploring DLT (Distributed Ledger Technology) based Central Bank Digital Currency. 
      • Under DLT, details are recorded in multiple places at the same time.
    • Central Bank Digital Currency (CBDC): It will be a legal tender.
      • Can be converted/exchanged at par with similarly denominated cash.
    • Need for Central Bank Digital Currency (CBDC): Need-Innovations are changing the payments space rapidly. 
      • This has made central banks around the world examine whether they could leverage technology and issue fiat money in digital form.

    Benefits of Cryptocurrency

    • Inherent security:  Use of pseudonyms and ledger system conceals the identities.
      • And, a transaction done by cryptocurrency is irreversible and cannot be reversed.
    • Low transaction cost: Very low fees and charges for transactions.
    • Lack of interference from the banking system: Outside ambit of banking systems.
    • Lower Entry Barriers: No entry barriers, unlike conventional banking systems.
    • Universal recognition: Lots of cryptocurrencies and acceptable in many nations.
      • The transaction is instantaneous and the transaction can be done across the globe without restrictions.


    • Security risks: Cyberattacks on wallets, exchange mechanism (Cryptojacking). 
    • Shield to Crime: Used for Illicit Trading, Criminal Activities, & organised crimes. 
    • Lack of Liquidity and Lower Acceptability: Outside the traditional banking systems.
    • Price Volatility:  Prone to price fluctuations & waste of computing power.
    • Lack Consumer Protection: No Dispute Settlement Mechanisms.

    Way forward

    • Cryptocurrency is, despite all its risks, perhaps the most exciting asset of the 21st century. A decentralized digital currency that works on the very interesting and likely here-to-stay blockchain technology. 
    • Take a cue from developed countries, have a safeguard, measures and regulatory.

    National Payments Corporation of India (NPCI)

    • It is an umbrella organisation for operating retail payments and settlement systems in India.
    • It is an initiative of RBI and the Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007.
    • It has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013).
    • Aims
      • To create a robust payment and settlement infrastructure in India.
      • To provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems.
      • To bring innovations in the retail payment systems through the use of technology for achieving greater efficiency in operations and widening the reach of payment systems.
    • Ten Core Promoter Banks: State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank N A and HSBC.

    Source: ET