In a bid to protect consumers and curb evils like money laundering, the RBI on Thursday barred all regulated entities, including banks, from dealing in virtual currencies like bitcoins, following its earlier multiple warnings on their risks.
Regulated entities already providing services to any individual or business dealing in digital currencies have been given three months to exit the relationship, Reserve Bank of India (RBI) Deputy Governor B.P. Kanungo told reporters here.
“The RBI has cautioned on at least three occassions members of the public and users of virtual currency regarding risks they are exposing themselves to through these cryptocurrencies,” he said.
“We have now decided to fence RBI-regulated entities from the risk of dealing with entities associated with virtual currencies. They are required to stop having a business relantionship with entities dealing with virtual currencies forthwith, and unwind the existing relationship within three months.”
According to an RBI statement, “virtual currencies, also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others”.
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the RBI shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies,” it said.
Noting, however, the benefits that blockchain technology, which underlies cryptocurrencies, can potentially bring for financial inclusion and to increasing financial system efficiency, Kanungo said the central bank is exploring a “fiat digital currency”.
“Several central banks are debating the possibility of introducing a fiat digital currency as opposed to the private digital tokens. These are issued by the central bank, are considered the liability of the central bank,” he said.
“They will be in circulation in addition to the paper currency and also holds the promise of reducing the cost of printing of notes.”
Kanungo said that an RBI inter-departmental committee has been constituted to prepare a report on the matter, to be submitted by June-end.
“They will explore the feasibility and desirability of issuing a digital currency by the central bank,” he said.
Last December, the government sounded an alarm on cryptocurrencies, comparing them with the notorious ponzi schemes floated to dupe gullible investors.
A Finance Ministry statement said that as virtual currencies were not backed by assets, their prices are entirely a “matter of mere speculation”.
According to investigation agencies here, with the demand and price of cryptocurrencies on the rise, cyber criminals have found innovative ways to dupe those looking to invest.
Bitcoins in India have been trading at more than Rs 10 lakh each, while people are investing amounts ranging from Rs 3,000 to several lakhs of rupees.