The Reserve Bank of India (RBI), the nation’s central bank, has directed all regulated entities including banks not to provide services to businesses dealing in cryptocurrencies such as bitcoin. RBI is doing so to protect consumer interest and to slow money laundering, the bank’s press release stressed. RBI also announced formation of an official study group to advise the world’s second most populous country on the feasibility of issuing its own state-backed digital coin.
Also read: India Searches for Ethereum Over Bitcoin
India’s Central Bank Orders Banks it Regulates to Drop Bitcoin
RBI Chief General Manager, Jose J. Kattoor, authored the Statement on Developmental and Regulatory Policies of 5 April 2018 (Press Release : 2017-2018/2642). The 16 part post “sets out various developmental and regulatory policy measures for strengthening regulation and supervision; broadening and deepening financial markets; improving currency management; promoting financial inclusion and literacy; and, facilitating data management.”
Numbers 12 and 13 are of particular interest to cryptocurrency enthusiasts. Under the heading, “Central Bank Digital Currency,” the RBI first acknowledged the many pitfalls of its legacy financial system. These “have led central banks around the world to explore the option of introducing fiat digital currencies,” Mr. Kattoor explains. “While many central banks are still engaged in the debate, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency,” suggesting details will be available this Summer.
Turning to the regulation of private cryptocurrencies, “Ring-fencing regulated entities from virtual currencies,” also begins softly with words like “potential” and “efficiency” and “inclusiveness.” And then it turns sour. “However,” RBI warns, “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. Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.”
Ring-fencing, therefore, will be done due “to the associated risks,” with RBI deciding 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. A circular in this regard is being issued separately.”
India Tightens the Noose
For sure, the Indian government has had a rough go of it with regard to cryptocurrencies in the world’s second most populous country. Though it has pronounced cryptos a danger many times officially, its citizens seem not to be getting the message. Regional media describes the cryptocurrency phenomenon in the nation as a “craze.”
Ring-fencing is pretty much as it sounds. Normally associated with the private sector, as a way to lower taxation by shifting assets safely way from revenue collectors, it can be employed by government in another fashion. Generally the pretext for government to ring-fence has to do with consumer protection, as the RBI is claiming here. Government will literally separate banking from cryptocurrencies via the legal system.
During a press conference, Deputy Governor of the RBI, BP Kanungo, who was appointed to his post almost a year to the day, announced banks entwined with cryptos would have three months to untangle. Mr. Kanungo stressed that governments the world over are also struggling with cryptocurrency regulation, and ignoring them could impact financial stability.
How do you think crypto businesses in India will do without banking support? Let us know what you think in the comments below.
Images via Shutterstock, RBI.