Updated: Jul 29, 2020

[Authored by Anubhav Seth, a 3rd year BBA LLB (Hons.) student at Vivekananda Institute of Professional Studies, Guru Gobind Singh Indraprastha University, Delhi.]


Cross-border money payments are transactions wherein the sender and the receiver of the transaction are located in different countries. These transactions may be between individuals, businesses or banks who are seeking to transfer money between territories. The concept of cross border transactions is not new. Trade across the silk route linked Asia to the Mediterranean region of North Africa and Europe. In the 15th century, Vasco de Gama pursued the spice trading route to India through the sea. As early as the mid-17th century, the transatlantic slave trade was developed. Opium is said to have been cultivated in India and exported to China by Great Britain in the eighteenth and nineteenth centuries and China imported silk, tea, and ceramics. However, the barter payment system was used and therefore there was no necessity for exchange. Exchange control seemed important to safeguard economies' interests due to the new twentieth-century political paradigm of the nations. Exchange control eventually became important to safeguard economies' interests due to the new twentieth-century political paradigm of the nations.

The Organisation for Economic Co-operation and Development (OECD) considers "transactions between residents of different countries" as cross-border operations.[1] The definition is all-inclusive and is very basic. As trade interdependencies flourish internationally, cross-border transactions encompass a very wide range of activities including financing and investing, manufacturing, and trading in products & services having different features concerning business models, modes of transfer, infrastructure, permanent establishment, Business Process Outsourcing and cost-sharing by Multinational Enterprises (MNEs).

Exchange controls are vital tools in cross-border transactions for safeguarding the balance of payments, removing short-term fluctuations in exchange rates and economic policy, and planning in every country. Exchange control refers to regulations imposed by the government of a country, on the mobility of currency between countries in private foreign exchange transactions and involves bank transactions, bank transfers, online payments, current account transactions due, in connection with foreign trade and capital account transactions.

Initially, laws for exchange control in India were implemented temporarily by the 1939 Defense of India Act. The Foreign Exchange Regulation Act was subsequently passed in 1947 and was further replaced with a stricter Foreign Exchange Regulation Act (FERA) in 1973. Owing to economic liberalization in 1991, international investments were required to be promoted in several sectors and hence FERA was replaced by a less stringent Foreign Exchange Management Act (FEMA), 1999, which came in effect from 1st June 2000. Presently, we have a plethora of legislations governing exchange control in cross-border transactions, including:

· Income Tax Act, 1961;

· Foreign Exchange Management Act 1999 (F E M A);

· Foreign Contribution Regulatory Act 2010 (F C R A);

· Prevention of Money Laundering Act, 2002 (PMLA); &

· Prevention of Money Laundering (Amendment) Act 2012 as amended periodically and complemented by rules and regulations.


Owing to the increasing growth of information and communication technology, many activities in our daily life have been integrated digitally and are becoming more dynamic, flexible, and more successful. An increasing number of online users have activated concepts of a virtual world and created a new business phenomenon. Consequently, new forms of trading, transactions, and currencies have emerged. In an increasingly networked world, where sending money from one person to another, from one bank to another, and from one country to another has proven difficult, Cryptocurrency is indeed one of the significant financial technologies that have emerged in the last few years.

A cryptocurrency (CC) can be defined as any medium of exchange, other than real-world money, which can be used in many financial transactions, whether they are virtual or physical. Cryptocurrencies constitute useful and intangible objects that can be used digitally or electronically in various applications and networks such as online social networks, online video games, virtual worlds, and peer to peer networks. However, the cryptocurrencies are not immune to every financial and security risk. Critical issues and impacts associated with Cryptocurrencies may include:

· Security threats: If hackers and malicious users hack or break the framework and know the ways of generating digital currency, they can generate as many digital currencies as they wish to.

· Collapse concerns in cryptocurrency systems: Unlimited production of digital currency in the myriad of virtual communities shall lead to economic challenges because its production is not demand and supply based.

· Impact on real monetary systems: Because certain digital currency systems are linked to real-world monetary systems, they can greatly affect real-world money demands and supply facilities.

· Fluctuation in virtual currency value: According to a study by Chow and Guo, it has been observed that when a digital community’s popularity declines, the value of its digital currency also falls.

· Money laundering: Possibility of money laundering is one threat that is likely to rise, through the use of CC, particularly on platforms that allow users to exchange digital currency with real-world money.

· Unknown identity risks: There is no way of identifying the source of virtual currencies being created or cashed out. It leads to failure to trace the transactions in the events of suspicious money laundering.


Chronology of Events -

The RBI issued the first of its several statements warning users of the risks associated with digital currency trading in December 2013. India's Finance Ministry in December 2017 said in a statement[2] that cryptocurrencies trigger an increased risk of an investment bubble of the kind seen in Ponzi schemes and that an unexpected and prolonged crash would cause damage to the investors. There were many reports in 2017 that the RBI could be experimenting with its virtual currency and this was later acknowledged by the RBI itself in April 2018 when it confirmed that the viability of a rupee-backed Central Bank Digital Currency (CBDC) was being evaluated by an interdepartmental team.

In April 2018 the RBI banned paying for cryptocurrencies using Indian banks' networks and gateways in a significant setback to cryptocurrency users. It was undoubtedly a convenient way for the RBI to crack down on investment in cryptocurrency through already controlled systems while limiting the regulated entities and users from the uncertainties of investing in cryptocurrency.

In April 2019, the RBI released a draft regulatory sandbox framework[3] welcoming creative fine-tech products and services, including applications for blockchain[4] and smart contracts[5], expressly excluding any cryptocurrencies and initial coin offerings. Regarding the RBI ban, in July 2019 an Inter-ministerial panel proposed a total ban on private cryptocurrencies while incorporating rupee-backed CBDC and the use of blockchain for a variety of usage cases.

Following all these events, a petition was filed by the Internet and Mobile Association of India (IAMAI), through which it wanted the Court to reconsider 2018 circular directing regulated entities not to deal in cryptocurrencies. The Supreme Court of India, on 4th March 2020 finally struck down the banking ban on the crypto industry and ruled in favor of Cryptocurrency by lifting the RBI ban. The court held that the RBI circular as unconstitutional. This positive judgment has opened the doors to massive crypto adoption in India. It proved that India can now innovate and participate in the blockchain revolution. The Judgment marks a huge milestone in India as well as globally and helps to add a positive outlook towards the crypto-trading process that became ambiguous during the wait.


After around a decade of implementation and use, the pros and cons of cryptocurrencies are now well known. Critics argue that RBI does not truly understand crypto-technology or power. This could be true. However, with RBI as the only official institution monitoring the health of the financial system in the country, it is expected to adopt a cautious and pragmatic approach towards something as erratic and dynamic as cryptocurrency, to enable and regulate it. RBI’s purpose indeed is to develop a regulatory infrastructure around new technologies so consumers are not deceived, however, more easily said than done.

It is equally true that Cross-border transfers are a perfect example of what advantages cryptocurrencies can offer. Cryptocurrency will only become it is believed, a simpler and much better choice for making payments overseas as progress continues.

[1]https://stats.oecd.org/glossary/detail.asp?ID=486 (November 5, 2001). [2] Ministry of Finance, Press Release: “Government Cautions People Against Risks in Investing in Virtual ‘Currencies’; Says VCs are like Ponzi Schemes” (29 December, 2017) by PIB Delhi, https://pib.gov.in/PressReleseDetail.aspx?PRID=1514568 [3] Reserve Bank of India, Publication Reports: Draft Enabling Framework for Regulatory Sandbox, (18th April, 2019) https://www.rbi.org.in/scripts/PublicationReportDetails.aspx?UrlPage=&ID=920 ; see also Reserve Bank of India, Press Release: Enabling Framework for Regulatory Sandbox, (13th August, 2019) https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=47869 [4] Blockchain is a form of DLT where linearly connected information-containing blocks, secured by cryptography, are shared between participants.The terms DLT and blockchain are often used interchangeably. DLT or Distributed Ledger Technology is distribution of a common ledger to all the participants of the network, and it is important to ensure that everybody has the same ledger with specific conditions and process for updating the ledger with information related to ownership of tokens, and so it is basically a publicly shared ledger of who owns what. However, Blockchain, is only a linearly connected chain of blocks, and a particular type of DLT. Source: Nalin Priyaranjan, Dr. Mohua Roy and Dr. Sarat Dhal of the Department of Economic and Policy Research (DEPR), Reserve Bank of India, RBI Bulletin On: 11th February 2020, https://m.rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=18766 [5] These contracts are basically lines of code or logic on DLT that execute themselves after the predetermined conditions are met. These can be interpreted as digital agreements where once the terms of the agreement are met, then the smart contract verifies it and transfers the tokens as per the terms. Source: Nalin Priyaranjan, Dr. Mohua Roy and Dr. Sarat Dhal of the Department of Economic and Policy Research (DEPR), Reserve Bank of India, RBI Bulletin On: 11th February 2020 https://m.rbi.org.in/Scripts/BS_ViewBulletin.aspx?Id=18766

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