RBI Reiterates Warning As Bitcoin Hits Another Record

RBI cautions against cryptocurrencies...again.

A collection of bitcoin tokens stand in this arranged photograph (Photographer: Chris Ratcliffe/Bloomberg)
A collection of bitcoin tokens stand in this arranged photograph (Photographer: Chris Ratcliffe/Bloomberg)

The Reserve Bank of India reiterated its warning on the use of cryptocurrencies even as bitcoin hit another record high of $11,850 amid increasing debate on regulating the use of such instruments.

The monetary watchdog clarified that it has “not given any licence or authorisation to any entity or company to operate such schemes or deal with bitcoin or any virtual currency,” in a notification issued on Tuesday. The RBI also reiterated its concerns on the “significant spurt in the valuation of many virtual currencies and rapid growth in intial coin offerings”.

Its remarks are a reiteration of the 2013 statement listing the potential “financial, operational, legal, customer protection and security” risks around holding and trading virtual currencies including bitcoin. The lack of “underlying or backing of any asset for virtual currencies” as the value is just a matter of speculation, it had pointed out at the time. Entities operating with virtual currencies have no regulatory approval, registration or authorisation, the central bank had said.

India, like most other countries, has taken a cautious stance on cryptocurrencies including bitcoin. Recently, Finance Minister Arun Jaitley reiterated the country does not recognise cryptocurrencies as legal tender.

The central bank, however, has a group studying whether digital currencies backed by global central banks can be used as a legal tender. As things stand, use of cryptocurrencies is a violation of foreign-exchange rules in India.

Bitcoin's meteoric 1100 percent rise in 2017 coupled with its increasing popularity has sparked a debate around its legitimacy. Central banks in the U.K., Brazil and Canada have taken a slightly lenient view towards its usage, with Bank of England Governor Mark Carney even citing it as a potential “revolution” in finance.

The verdict from top bankers, economists and policy makers remains split. JPMorgan Chase CEO Jamie Dimon calling it a “fraud” and business magnate Warren Buffet terming it a bubble. Goldman Sachs chief Lloyd Blankfein is “open to it” while Paypal co-Founder Peter Thiel has said critics are underestimating its potential. Microsoft founder Bill Gates has called it “better than currency”.

In the midst of this debate, at least three U.S. exchanges – the Chicago Mercantile Exchange, Cboe Global Markets and Nasdaq Inc. – have announced plans to start trading bitcoin futures.