Monetary Policy review 2018: RBI orders banks to stop services to those dealing with bitcoin, other virtual currencies

Monetary Policy review 2018: The Indian regulatory boards have been cautious on trading in cryptocurrencies that includes Bitcoin, with both the Reserve Bank of India (RBI) and government warning citizens over dealing in such coins. However, the craze for the virtual currencies continues, even as the trade has turned very volatile currently. Thus, while maintaining status quo, the RBI in a major move, ring-fenced the entities regulated by them from virtual currencies.  RBI has directed all regulated entities including banks not to provide services to businesses that are dealing in virtual currencies like bitcoin. The central bank said it was doing so to protect consumer interest and check money laundering.

RBI said, "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."

It added that, RBI has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.

Thus, in view of the associated risks, the RBI has decided, with immediate effect, that 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. 

In the month of December 2017,  flagged concern over use of Bitcoins and other virtual currencies. The banking regulator had earlier said it had not issued licenses or authorisations to companies to trade in these currencies.

Bitcoin is a cryptocurrency and a payment system accepted in certain parts of the world. It is a decentralised digital currency which simply means it works without central repository. Bitcoin is available for trading since 2009, and due to last year’s blockbuster performance, it managed to give return 18,329.91% or 184.30 times return. Bitcoin so far has touched a high of $20,000. 

There are about 1,548 cryptocurrencies currently open for trading, with Bitcoin dominating the market.

Cryptocurrencies have grown to such an extent that the government can no longer ignore or ban them outrightly, as thousands of Indians have put in money in virtual currencies.