End of Road For Bitcoins In India? RBI Issues 3-Month Ultimatum To Banks
Clamping down on virtual currencies such as bitcoin, the Reserve Bank of India (RBI) on Thursday announced to ring fence banks and financial institutions from dealing in them. In its first policy statement of fiscal year 2018-19, the central bank highlighted that the banks should stop dealing with the entities that deal in digital currencies, such as bitcoins. The central bank has on multiple occasions in the past cautioned users against use of virtual currencies including bitcoins. Bitcoin is the world's largest cryptocurrency.
"To ring fence the RBI regulated entities (banks) from the risk of dealing with entities associated with virtual currencies, they (banks) are required to stop having business relations with the entities dealing in virtual currencies forthwith. And (they are also required to) unwind the existing relation in three months," said B P Kanungo, deputy governor of RBI.
The deputy governor also said that the digital tokens are getting international attention and regulatory responses are not uniform. The investment in digital currency for speculative purposes can adversely impact market integrity, and capital controls, and if they grow in their critical size, they can endanger financial stability.
On three occasions, the central bank has cautioned the users, traders and holders of digital currencies.
The first warning was sent in December 2013, the second in February 2017 while the last one in December 2017.
"Users, holders and traders of Virtual Currencies (VCs) including Bitcoins are cautioned regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with such VCs," said the RBI release in December 2017.
Similarly, through a press release on February 1, 2017, RBI had clarified that it has not given any licence/authorisation to any entity/company to operate such schemes or deal with Bitcoin or any VC.
The RBI, however, acknowledges the importance of blockchain technology that lays the foundation of virtual currencies. "The blockchain should be encouraged to be exploited for the benefit of economy," said Kanugo.
In response to global digital tokens, global regulators are thinking about fiat tokens. "They are the liability of central bank. They hold the promise of reducing the cost if printing," said Kanugo.
In view of this, the central bank has set up an inter-departmental committee to explore feasibility and desirability of starting our own digital currency in future, informed Kanugo.
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