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The RBI Governor Raghuram Rajan on Wednesday said the central bank is currently understanding virtual currencies better and that it will come out with a more considered view on it.
Speaking at a Nasscom event Rajan said, “In the meantime, we had put out a cautionary advisory explaining some of the concerns that investors or users of bitcoins should have without in any way saying anything about our future course of action.”
In December, RBI had cautioned users, holders and traders of virtual currencies about potential financial, operational, legal, customer protection and security-related risks that they are exposing themselves to.
Currently, the Government has said creation, trading or usage of virtual currencies as a medium of payment are not authorised by any central bank or monetary authority.
Finance Minister P. Chidambaram on Tuesday said in a written letter in the Rajya Sabha that the RBI is examining legal and security aspects of virtual currencies such as bitcoins or litecoins under the extant legal and regulatory framework of the country, including foreign exchange and payment systems laws and regulations.
According to Rajan, “As a currency I do worry a little bit when the underlying fluctuates tremendously. One of the values of a currency is some stability. And to the extent that a currency is a target of speculation as opposed to primarily a means of exchange, it does create some concerns for the user. Will it retain the same value tomorrow as it has today and in that sense it has more diminished value as a means of exchange than something more stable.”
He further said that put that aside, “I do think that we have to understand the role of virtual currencies and how they will interact with paper currencies that you have. Who gets the benefit of seniorage — that’s an important question for Governments. But also who will maintain value — can we have confidence in an unseen, unknown centre which will maintain the value of the currency or an algorithm which will maintain the value of the currency.”
“I don't want to say that there is no future for these virtual currencies. It is a process of evolution. But for now all we have done is express the kinds of concerns we have about it without determining in any which way what we intend to do,” Rajan added.
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