RBI bars banks from supporting bitcoins

In a major blow to bitcoin exchanges in the country, Reserve Bank of India (RBI) has asked all the regulated entities, including banks, from providing services to any individual or business dealing in digital currencies. The central bank has given three months to banks to end all existing relationships with bitcoin players. However, the central bank, in an interesting move, also said it is keen on floating its own cryptocurrency or digital currency going ahead.

“Rapid changes in the landscape of the payments industry along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money have led central banks around the world to explore the option of introducing fiat digital currencies. While many central banks are still engaged in the debate, 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,” RBI said adding that a report in this regard will be submitted by end of June this year.

‘Not a legal tender’

RBI's move to clamp down on the cryptocurrencies comes two months after Finance Minister Arun Jaitely in his Budget speech said that digital currencies cannot be recognised as a legal tender . Besides, in the last few weeks, several other countries, including Japan, the country where Bitcoin is rumoured to have originated, has also warned its people against the use of cryptocurrencies. Japan's central bank has also published as somewhat negative Q&A for those seeking answers on cryptos.

Going after the cryptocurrencies such as Bitcoin, Ripple, Ethereum and the exchanges dealing with these currencies, the apex bank in its monetory policy said that, “Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.”

RBI also said that it has been cautioning the users for many months while dealing with VCs and further cautioned the holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. “In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately,” it added.

Meanwhile, there has been no comments from the cryptocurrency exchanges operating in the Indian market. Zebpay, a leading player in this segment, said that they are still studying the RBI circular and would respond accordingly if needed.

However, Praveen Kumar, founder of Singapore based blockchain and cryptocurrency exchange Belfrics called it a “bad move from the Government”. He further told BusinessLine that the users will still continue to buy VCs through P2P platforms, which are not even present in the Indian market. This move is not going to help the government in nabbing people engaged in money laundering nor will it help the tax department, he added.

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