RBI bars banks from crypto services

The Reserve Bank of India announced a major crackdown on crypto currencies even as it unveiled plans to create its own digital currency. Following the announcement, the value of Bitcoin in India fell from Rs.4.6 lakh to Rs.3.5 lakh. In its first policy for FY19, the RBI said banks and other regulated entities cannot provide services to users, holders and traders of crypto currencies.

Simultaneously, it said a panel would submit a report by June on the desirability and feasibility of introducing a virtual currency backed by the government. While the RBI is looking at digital currencies for cutting costs of paper and making transactions more efficient, the system would be in addition to paper currency and will not entirely replace banknotes.

The RBI’s notification triggered panic-selling among Bitcoin traders.

RBI deputy governor B P Kanungo said, “Digital tokens issued by private parties have been getting international attention for quite some time because of their speculative value. While the regulatory responses are not uniform, it is universally felt that they (cryptocurrencies) could seriously undermine the anti-money laundering and financial action task force framework, adversely impact market integrity and capital controls and, if they grow, they can endanger financial stability.”

RBI’s Kanungo also said that while the RBI was ring-fencing banks from crypto currency risks, it was mindful of the advantages of blockchain — the ‘public ledger’ technology behind crypto currencies. “We also recognise that the blockchain technology has potential benefits for financial sector and we believe that they should be encouraged to be exploited for the benefit of the economy,” said Kanungo.

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