The Reserve Bank of India (RBI) has announced that regulated financial institutions in India can no longer deal with cryptocurrencies legally. It also mentioned that those providing cryptocurrency services will need to put a stop to it by a specified time – which will be announced at a later stage.
A statement released by the bank said, “In view of the associated risks, 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 [virtual currencies].”
Most digital currencies, like Bitcoin, are not backed by central governments which leaves it to varied standards and regulations in each country. In India, cryptocurrency, including Bitcoin, is not recognised as legal tender.
Cryptocurrencies gained mass attention in December last year when the price of Bitcoin rose more than 1,300 percent to nearly $20,000.
The Indian government had previously issued warnings about the risks associated with cryptocurrency trading. There were flags raised over consumer protection, market integrity and money laundering – according to the bank.
The government had planned to “take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system,” Finance Minister, Arun Jaitley had told lawmakers in February reportedly.
A national survey showed that there was more than $3.5 billion worth of transactions conducted over a 17-month period with tens of thousands of citizens investing in cryptocurrency – to whom the country’s tax department sent notices.
Thursday’s statement was part of an announcement about broader regulatory policy measures for strengthening financial market regulation.
However, RBI is more open to the technology of blockchain which underpins virtual currencies. The bank said that the technology has the potential to ‘improve the efficiency and inclusiveness of the financial system.’