The Reserve Bank of India (RBI) has announced that the bank will no longer provide services to any person or business that deals with cryptocurrencies, adding that it is also looking into releasing its own cryptocurrency in the future, according to a “Statement on Developmental and Regulatory Policies” released today, April 5.
India’s Finance Ministry had criticized Bitcoin (BTC) and cryptocurrencies for their “lack of intrinsic value” in January of this year, and the month saw several large Indian banks close or limit the functionality of crypto exchange accounts. In early February, false reports in the media of a country-wide crypto ban in early February led to a drop in the crypto markets.
RBI’s statement reads that although the technological innovations that support cryptocurrencies “have the potential to improve the efficiency and inclusiveness of the financial system […] Virtual Currencies (VCs] […] raise concerns of consumer protection, market integrity and money laundering, among others.”
RBI continues by noting that they have already warned those involved in the crypto industry several times of the “various risks” of dealing with cryptocurrencies before stating finally that:
“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 VCs. Regulated entities which already provide such services shall exit the relationship within a specified time.”
According to local news outlet Quartz India, the period of time for businesses to extract themselves from the crypto sphere is three months.
At a press conference today, Bibhu Prasad Kanungo, the deputy governor of RBI, said in regards to the decision that cryptocurrencies have the potential to “endanger financial stability:”
“Internationally, while the regulatory response to these tokens are not uniform, it is universally felt that they can seriously undermine the AML (anti-money laundering) and FATF (Financial Action Task Force) framework, adversely impact market integrity and capital control. And if they grow beyond a critical size, they can endanger financial stability as well.”
Panjak Jain, who works in Blockchain and crypto communities in India as an investor and an advisor, posted a series of tweets today about the new RBI crypto regulations, underlining that the Indian government “hasn’t banned crypto:”
1/ Today the Reserve Bank of #India issued a circular telling “entities registered with the RBI” (essentially banks, financial firms) to stop working with crypto exchanges and businesses. The Indian government, hasn’t banned #crypto.
— Pankaj Jain (@pjain) April 5, 2018
Jain’s further tweets note that “the Indian government is obviously not coordinating amongst the various parts of the government,” citing that income tax is being collected on crypto traders, and adding that it is “interesting” that “RBI cut off fiat from crypto exchanges that have been following fairly good KYC/AML practices used by Indian institutions:”
8/ The Indian crypto market is still pretty small but offers a lot of future growth and opportunities, especially for the unbanked. I hope the RBI and the rest of the Indian government rethink this decision and take a more positive approach towards #crypto.
— Pankaj Jain (@pjain) April 5, 2018
Meanwhile, the same RBI statement on the end of its association with crypto dealings adds that the bank will be looking into creating its own state-backed cryptocurrency, “in addition to the paper currency that we have,” Kanungo notes, with a report to be submitted on its feasibility by the end of June 2018.
RBI’s interest in their own cryptocurrency is due to the “rapid changes in the landscape of the payments industry along with factors such as emergence of private digital tokens and the rising costs of managing fiat paper/metallic money,” which they cite as the impetus for central banks around the world to introduce “fiat digital currencies.”
Kanungo adds that a state-backed cryptocurrency could “hol[d] the promise of reducing the cost of printing of notes.”
Sathvik Vishwanath, the co-founder of India’s Unocoin, told Quartz India that he doesn’t believe this is the “right direction that the central bank has taken:”
“This will cause panic among a few million people in India who are already using cryptocurrrencies [sic] . If they want to launch their own digital currencies, they don’t need to ban existing ones.”