RBI has set up a panel to study the feasibility of introducing a virtual currency and a report will be submitted by the end of June.

RBI bars banks from dealing in cryptocurrencies mulls launch of own digital currencyImage source: PTI
Atom Cryptocurrency Friday, April 06, 2018 - 17:47

The Reserve Bank of India has issued an order preventing banks and all other financial entities in India from dealing with cryptocurrencies, whether it is individuals or companies holding such digital assets and trying to park them with these institutions. These include non-banking financial companies or e-wallet operators; practically every outfit that comes under the ambit of RBI’s control will have to comply with this new order.

Interestingly RBI has also disclosed that it is planning to launch a digital currency of its own and for this, it has set up a study group comprising experts drawn from different departments within the Reserve Bank and the group has been asked to submit its report by June.

According to RBI, consumer protection, market integrity and money laundering are some of the major concerns while dealing with this highly volatile digital asset and the step taken by RBI is also consistent with the position taken by many Central Banks and governments across Asia and elsewhere.

Countries like Japan and South Korea have come down heavily on Bitcoin and other cryptocurrencies, particularly after the wild fluctuations in the price of Bitcoin which went up to dizzying heights of around $20,000 per unit before falling to the $7,000 levels now causing losses to many. This has prompted the governments in these countries to step in to protect these investors and others from falling a prey to these highly speculative assets without fully understanding the ramifications.

Readers may recall that Finance Minister Arun Jaitley had made a mention in his Budget speech that the government does not recognize cryptocurrencies as legal tender, although the cryptocurrency exchanges may be permitted to function subject to the regulations in place.

But this latest announcement by RBI will make these exchanges operating in India from transacting any business on its platform since the buyers and sellers will not be able to operate their bank accounts to make or receive payments for cryptocurrency transactions. RBI’s statement allows for a transition arrangement, in which the existing relationships of any kind these banks and the other institutions may have, with those dealing in cryptocurrencies will have to be terminated.

Going back to the intention of RBI to launch a digital currency, it has mentioned that the increasing use of digital payments and the cost of printing paper currencies and managing them have prompted many countries to explore the development of virtual money that could be a supplement to the real currency already in circulation. Only when the bank comes up with the details, the other information will become clear. 

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