India virtually banned cryptocurrencies like bitcoin with the Reserve Bank of India barring regulated entities from providing services to any individual or business dealing in digital currencies.
The central bank has given three months to regulated entities like banks to unwind their positions with the entities related to cryptocurrencies, RBI Deputy Governor BP Kanungo said in a media conference Thursday, April 5.
“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.
Reserve Bank has repeatedly cautioned users, 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,” the RBI said in a statement.
According to BP Kanungo, RBI deputy governor, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control.
“And if they grow beyond a critical size, they can endanger financial stability as well,” he added.
Earlier this year, India’s Finance Minister Arun Jaitley said that the government doesn’t consider cryptocurrencies as legal tender and will take all measures to eliminate payments using them.
The regulator, however, decided that it will promote the use of blockchain – a public ledger that serves as the backbone of bitcoin – in financial services for strengthening transparency and improving inclusion. In line with central banks around the globe, the RBI too is mulling introducing a fiat digital currency.
“These are issued by the central bank and are considered the liability of the central bank,” Kanungo said. “They will be in circulation in addition to the paper currency that we have. It also holds the promise of reducing the cost of printing notes.”
RBI added it will issue detailed guidelines in a circular soon.