MUMBAI: The Reserve Bank of India ( RBI ) on Thursday barred banks and financial institutions from dealing with virtual currencies including Bitcoins and said that it was time and again warning users of virtual currencies regarding the risks associated with it.
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs (virtual currencies),” the RBI said in a statement on Thursday. “Regulated entities which already provide such services shall exit the relationship within a specified time.”
The RBI is expected to issue a circular in this regard very soon.
The regulator will also give a three-month buffer period to entities to unwind their business relationships.
“We have decided to ring-fence the RBI regulated entities from the risk of dealing with entities associated with virtual currencies. They are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationship within a period of three months,” BP Kanungo, Deputy Governor, RBI said.
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In the past, the Indian government and the Reserve Bank of India have issued several warnings against dealing in cryptocurrencies including Bitcoins, the former even comparing it with a Ponzi scheme . RBI recently warned users of virtual currencies including Bitcoins regarding the potential economic and financial risk associated with cryptocurrencies.
RBI has also in the past clarified that it has not given any license to any company to operate or deal with Bitcoin or any other virtual currency.
Nearly a dozen countries including China have already prohibited the digital currency.
The RBI on Thursday however said that it recognises the importance of Blockchain technology and distributed ledger technology and will encourage it for the growth of financial inclusion.
“We also recognize that the Blockchain technology or the distributed ledger technology that lies beneath the virtual currencies has potential benefits for financial inclusion and enhancing the efficiency of the financial system and we also believe that they should be encouraged to exploit beneficially for the economy,” Kanungo said.
Globally, central banks have debated the possibility of introducing a fiat digital currency as opposed to the private digital tokens. The regulator also said that it had set up an inter-departmental committee to study the possibility of fiat digital currency issued by the central bank.
“We have constituted an inter-departmental committee, Reserve Bank of India will produce a report and they will explore the feasibility and desirability of issuing a digital currency by the central bank,” Kanungo said. “These are issued by central banks, they constitute the liability of the central bank and they will be in circulation in addition to the paper currency. It also holds the promise of reducing the cost of printing of the notes.”
In February this year Finance Minister Arun Jaitley outlawed the use of cryptocurrencies in India while presenting the Union Budget 2018 and said that India would further explore the use of block chain technology to add muscle to the digital economy. “The Government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system,” Jaitley had said.
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