Reserve Bank of India, in its report on 18th April, announced the terms on its regulatory sandbox for blockchain technologies. This means that the technology could be tested with a certain percentage of people before being available to the masses.
However, Cryptocurrencies and other related products are to be still kept at bay. Also, the products and services that enable trading in crypto assets have also been excluded from the regulatory. It could take more time for cryptocurrencies to find the Indian market.
What is Regulatory Sandbox?
Regulatory sandboxes are used by central financial organizations throughout the world for beta testing financial technologies before they are released openly into the market. This helps in making regulations, based on the issues faced by the users of the technology.
Also, it helps small-scale startups and companies test the innovations in products or services at a low roll out. Startups innovating on retail payments, KYC, digital advisory, digital contracts and cybersecurity are also called in to be a part of the regulatory.
The RBI report says that this would also benefit the users as they will be having improved access to financial services at lower costs.
This decision makes sense and the timing couldn’t have been better. As more and more entrepreneurs take an interest in the financial sector, there’s an increased chance of innovations that could solve problems at the root level.
In the world’s 2nd most populous country, providing financial services to everyone is a serious issue that needs to be solved. Many startups are trying to make it work by creating improved payment gateways, loan lending services and others but there’s always room for more.
What about cryptocurrencies then?
Well, the Supreme Court of India is yet to announce its verdict on the legal status of cryptocurrencies in the country. The hearing is in July this year and the industry is very volatile right now. Many companies have either slowed down or stopped their operations, ahead of the verdict.
It could be hoped that if the Supreme Court announces a verdict in the favour of cryptocurrencies, they might be a part of the Regulatory sandbox. But until then, they are to be excluded. Earlier this year, the RBI was planning to design its own cryptocurrency but the plans were postponed later on. The Supreme Court demanded to issue regulations in a four-week period, leading up to this regulatory sandbox.
If this beta testing brings forth innovative blockchain technologies, which can also be regulated to minimize risks, it would open new possibilities for the future of the industry in India. And if the SC lifts the ban, as some experts speculate, cryptocurrency will thrive in a growing economy like India.