News has it that Facebook is foraying into online remittances and will introduce a tethered digital asset named “Libra” to fuel this system. Libra will be linked with the INR (i.e. the Indian National Rupee) and each Libra will always convert to 1 INR.
How will this play with the April 2018 RBI circular that imposed a de facto ban on trade of virtual currencies in India? While de-barring all users of virtual currencies from the formal economy, RBI hedged its bets by choosing not to define precisely what it meant by the term “virtual currency”. In this manner RBI could choose to include or exclude any form of digital assets form the purview of the circular, as and when it pleases.
It is our contention that Libra may not, in spirit, fall foul of the RBI circular if it complies with the following-
- Libra is nothing but a technology for enabling regulated payment activity (assuming Facebook has applied for received all requisite RBI approvals);
- Digital assets should concern RBI only if they qualify as “currency”, the most essential attribute of which is that it should be a medium of exchange (i.e. fungible). In Libra’s case it is clear that it will not be fungible as it is not intended to leave the Facebook platform;
- Libra should optically be less concerning to a regulator if it is centralized (meaning the RBI has someone to hold accountable in case things go wrong) and does not possess value independent of the fiat currency it is tethered to. Hence, transactions in Libra would not be regarded as speculative trading.
If Libra were to tick the above boxes, then we expect it to not ruffle feathers, though it would help if Facebook chooses to refer to Libra as a payments technology rather than a cryptocurrency or a digital asset.
This post is authored by Tanya Sadana, Senior Associate and Anirudh Rastogi, Managing Partner at Ikigai Law