Did RBI Ask Coinbase to Stop its Services Through UPI?

Nasdaq-listed Coinbase’s chief executive officer (CEO) Brian Armstrong has revealed that its services in India had to be halted because “after launching, we ended up disabling unified payments interface (UPI) because of some informal pressure from the Reserve Bank of India (RBI), which is kind of the treasury equivalent there.”

 

Coinbase is an American company that operates a cryptocurrency exchange platform. UPI is the instant real time payment system developed by National Payments Corporation of India (NPCI) for facilitating inter bank peer to peer and person to merchant transactions. NCPI is the governing body of UPI transactions.

 

Coinbase launched its crypto trading services in India on 7 April 2022. Customers of the service could buy crypto tokens using UPI on the app. However, the service was rolled back within just three days after the launch.

 

Armstrong called it a ‘shadow ban,’ mentioning that some elements in the Reserve bank and government are not comfortable with crypto trading. 

 

However, NPCI has contradicted Armstrong’s comments. It issued a statement saying, “With reference to some recent media reports around the purchase of cryptocurrencies using UPI, NPCI would like to clarify that we are not aware of any crypto exchange using UPI.”

 

The RBI’s action “may be actually in violation of the Supreme Court ruling, which would be interesting to find out if it were to go there. But I think our preference is really just to work with them and focus on relaunching. I think there’s a number of paths that we have to relaunch with other payment methods there. And that’s the default path going forward,” Armstrong said.

 

The Reserve Bank had, in April 2018, banned cryptocurrency through its circular. However, the Supreme Court, in its judgment on Internet and Mobile Association of India vs RBI in March 2020, ruled against the RBI’s circular. The SC noted that, in the absence of any legislative ban on the buying or selling of cryptocurrencies, the RBI cannot impose disproportionate restrictions on trading in these currencies. (Read: Supreme Court Quashes RBI Ban on Banking Services to Cryptocurrency Dealers)

 

Even after the ruling, the central bank as well as the Union government, through their actions, continue to informally discourage trading in cryptocurrencies.

 

In the Union Budget for FY22-23, finance minister Nirmala Sitharaman announced the imposition of 30% tax on the proceeds made on the transfer of virtual digital assets. It was also announced that any loss made on the transaction of such digital assets cannot be set off against any other gain.

 

It is obvious that the government of India is not comfortable with cyrptocurrency, which is why it has come up with tough and unusual tax laws and now a ‘shadow ban’ by the RBI. But, at the same time, it does not want to come out openly against cryptos. 

 

Meanwhile, Coinbase’s quarterly filing said on Tuesday that, in the event of bankruptcy, crypto assets held by the exchange could be considered property of the bankruptcy proceedings and customers could be treated as general unsecured creditors. Armstrong later wrote on Twitter that Coinbase faced no risk of bankruptcy and the statement was a part of regulatory requirements.

 

Coinbase is not the only entity impacted by these actions. Daily trading volumes on Indian crypto exchanges have tumbled by between 88% and 96% since peaking last year.