RBI cracks down on digital currencies, plans own cryptocurrency
While accepting that virtual currencies have the potential to improve efficiency of the financial system, the central bank said they also raise concerns of consumer protection, market integrity and money laundering, and has asked banks to stop services to customers dealing in virtual currencies.Updated: Apr 05, 2018, 18:43 IST
The Reserve Bank of India (RBI) on Thursday tightened the rules to discourage use of virtual currencies like Bitcoins and also announced a study to explore introduction of ‘fiat’ digital currencies which can be issued by it.
An interdepartmental group has been constituted to study and provide guidance on the “desirability and feasibility” to introduce a “central bank digital currency” and will submit its report by June, the central bank said.
“Several central banks are debating the possibility of introducing a fiat digital currency. As opposed to private digital tokens, these are issued by a central bank. They constitute liability of the central bank, and they will be in circulation in addition to the paper currency that we have,” RBI deputy governor BP Kanungo told reporters during the customary post-policy address.
“We have decided to ring-fence the RBI regulated entities from the risks of dealing with virtual currencies. These operators are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationships within three months,” Kanungo said.
He further said that having such a currency will also reduce the cost of printing and circulating paper currency.
Kanungo said the blockchain or the distributed ledger technology, which is the backbone of the digital currencies like Bitcoins, has a lot of relevance for the wider economy and we need to embrace those.
“We recognise that blockchain technology or the distributed ledger technology that lies beneath the virtual currencies has a potential benefit for financial inclusion and enhancing the efficiency of the financial system.
“We also believe that they should be encouraged to be exploited beneficially for the economy,” he said.
It can be noted that across the world there has been heightened concerns over Bitcoins and their safety as they are not regulated by any governments/central banks, leading to concerns over money laundering.
There were media reports that the government is mulling the introduction of its own virtual currency called “Laxmi”, the deputy govenor said.