RBI to ring-fence banks, and payment companies from virtual currencies; time to say good-bye to bitcoin?

Last Updated: Thu, Apr 05, 2018 18:16 hrs
FILE PHOTO: A Reserve Bank of India (RBI) logo is seen at the entrance gate of its headquarters in Mumbai

A press release titled "Statement on Development and regulatory policies" released by the Reserve Bank of India suggests that it could be time to bid good-bye to cryptocurrencies such as bitcoin. The release which talks majorly of regulations in the financial markets briefly touches upon the aspect of virtual currencies.

Point number 13 in the release reads, "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 (Virtual Currencies)."

With this, the RBI seems to have set the process of killing the crypto industry in the country and joining the likes of China, which has imposed severel restrictions on crypto-mining.

The RBI circular on analysis means that regulated entities such as banks, payment companies, and processing companies will not provide services to those dealing with Virtual Currencies. Although the RBI accepted that digital cirrencies have the potential to improve the efficiency and inclusiveness of financial system, it raised concerns of consumer protection, market integrity, money laundering etc.

"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," read the report.

Banks and payment processors, the release suggests would be offered timelines to exit relationship with VC (virtual currencies). "Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately," added the note.

Bitcoin, one of the premium currency flavours, was trading at $6775 per coin, and post the RBI announcement the price was $6797.44. Although India has not been as busy a market as South Korea or Japan, but regulatory orders have usually resulted in a sell-off for crypto-currencies.

The order on Thursday is very likely to hit the business and operations of crypto-currency processors in the country, majorly ZebPay, UnoCoin, Koinex, and Coinsecure, some of the popular trading portals.

These trading portals expressed shock on the RBI's surprise announcement. Some suggested that this may cause panic among users of crypto-currencies. Some interpreted the release as only an obligation on regulated entities meaning the RBI had not banned crypto currencies yet.

But with the order of restricting payments, it is unlikely that trade in crypto-currencies could continue with the regular account-to-account mode of payments. For those of you who thought that payments could be processed using other payment options such as an app or a payment processor, the reserve bank mentions "regulated entities" and the release is likely to hence include payment processors too. This in other words suggests that only cash based transactions could keep the crypto-currency movement continuing.

The release on a lighter note also suggests the optimism of the Federal Bank in launching its own flavour of crypto-currencies. "Although the RBI Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system," read the note.

"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. The Report will be submitted by end-June 2018," added the note.

The RBI's decision was criticized on Twitter:

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