RBI asks banks to stop services to those dealing in virtual currencies

The announcement comes via an official press release issued by The Reserve Bank of India (RBI). He also owns several bitcoin mining operations including in China.

The RBI, which has come out with three specific warnings to discourage public from investing in the virtual currencies, today announced a "ring-fencing" of the country's financial system from the private virtual currencies, which have been called as illegal by Finance Minister Arun Jaitley.

"We recognise that blockchain technology or the distributed ledger technology that lies beneath the virtual currencies has a potential benefit for financial inclusion and enhancing the efficiency of the financial system".

"However, virtual currencies (VCs), also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others", it said.

The RBI, however, gave banks and other entities which are regulated by it and now providing such services to exit the relationship within a period of three months. The statement also said that detailed instructions will be issued in this regard within one week.

As a result of the ban, traders will no longer be able to deposit or withdraw fiat currency at cryptocurrency exchanges, forcing them to use peer-to-peer (P2P) trading platforms such as LocalBitcoins.

".an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency". The group will submit its report by June.

Meanwhile, RBI is exploring the creation of its own cryptocurrency. Assumptions may be made that the RBI is attempting to dispel the undermining threat of cryptocurrencies by co-opting the technology for itself.

This, however, does not mean that the RBI is going to blindly throw the baby out with the bathwater.

It has set up a panel to look into the issues relating to cryptocurrencies and plans to appoint a regulator to oversee unregulated exchanges. The people will now go fully peer-to-peer and get their bitcoins from each other via OTC [Over The Counter] exchanges.

On a day when authorities arrested a Pune-based bitcoin "entrepreneur" in New Delhi, the Reserve Bank of India directed banks and others to cease all relationships with bitcoin players.

  • Fernando Stephens