The Indian cryptocurrency industry has petitioned the government and the Reserve Bank of India (RBI) to restore its access to the hugely popular Unified Payments Interface (UPI) for cryptocurrency-related services and activities.
Crypto exchanges and their users based in India lost access to UPI after it was suspended in 2022.
Major Push By Crypto Stakeholders
Two separate proposals were made to the Indian government and the Reserve Bank of India, asking for the restoration of access to UPI. UPI is a real-time payment system that the crypto space lost access to in 2022. The requests were made by an Indian cryptocurrency exchange and a policy advisory firm, Black Dot. Furthermore, there is a third proposal in the pipeline, which will be made in the next few weeks. This proposal will be made by a new crypto policy advocacy group called the Bharat Web3 Association (BWA).
The proposals are not related or coordinated with one another. However, they represent the first significant push by those in the crypto space to argue for policy changes governing the industry that has been left in limbo thanks to the ongoing crypto winter, a series of harsh taxes, and a shadow ban. As a result of the shadow ban, Indian banks, and payment processors cut off access to banking services for cryptocurrency exchanges. Following this, exchanges also lost access to UPI services shortly after.
India’s Burgeoning UPI Ecosystem
Following the Covid-19 pandemic, India has seen a staggering adoption of UPI by its growing and tech-savvy population. In 2022, the UPI interface processed 74 billion UPI transactions worth over $1.5 trillion. Citizens using UPI can pay for groceries and nearly all services through a QR code linked to their bank account. The UPI system is used nationally by merchants and is hugely popular because merchants are not charged a fee to accept UPI payments.
The Trigger For The Setback
So why did Indian cryptocurrency exchanges lose access to UPI? The trigger for the crisis can be traced to the launch of Coinbase in India. Coinbase launched its operations in India on the 7th of April, 2022, with executives going out of their way to highlight how easy trading on the company app would be with UPI processing all payments. Shortly after the event, the governing entity of UPI, the National Payments Corporation of India (NPCI), tweeted that it was not aware of crypto exchanges using UPI services. The NPCI works under the Reserve Bank of India (RBI).
The Proposals In Question
An Indian cryptocurrency exchange made the first proposal to restore UPI access. However, the exchange requested not to be identified as the matter had not been made public as yet. The exchange noted,
“We have submitted a representation with the NPCI, seeking the removal of restrictions on the use of UPI services.”
The exchange made the proposal shortly after India added crypto to the Prevention of Money Laundering Act (PMLA). This made cryptocurrency exchanges, NFT marketplaces, and custody wallet service providers legally responsible for monitoring and reporting any suspicious financial activities. Some believed that this would give regulators more teeth in dealing with the industry, while others believed this would give more legitimacy to the growing crypto sector in the country.
The second proposal was made in tranches, both before and after India made crypto subject to anti-money laundering rules governed by different authorities. This proposal was made by the public policy advisory firm Black Dot. Black Dot has previously collaborated with the Indian Government. The Black Dot proposal states UPI’s seamless user experience ensures that all transactions are on-shore, giving regulators and relevant authorities a clear trail of transactions.
Black Dot cited a report stating that since the closure of UPI access, over 80% of transactions were conducted on a peer-to-peer basis. The proposal further added,
“Arbitrarily denying a class of investors from accessing instruments of their choice via UPI when another group of investors has access to their choice (e.g., IPO) may also violate Article 14 (equality before the law).”
As of now, it remains to be seen if the Indian government or the Reserve Bank of India are moved by these proposals. However, the Indian crypto space is unanimous in its view that restoring UPI access would lend the space a significant amount of credibility.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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