You will not be able to buy cryptocurrency via banks in India

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You will not be able to buy cryptocurrency via banks or e-wallets etc. in India anymore as Reserve Bank of India (RBI) has banned them with immediate effect from “dealing with or providing services to any individuals or business entities dealing with or settling virtual currencies”.

RBI it its first bi-monthly monetary policy has announced that any entity regulated by them such as banks, wallets etc. shall not deal with or provide services to any individual or business entities for buying or selling of cryptocurrency such as bitcoins. If banks, e-wallets and any other entities regulated by RBI are not allowed to facilitate sale or purchase of cryptocurrencies, obviously individuals will not be able to transfer money from their bank accounts to their crypto-trading wallets.

“A person will not be able to transfer money from his savings account to his cryptowallet” says, Abizer Diwanji, Head, Financial Services, EY India.

The central bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.

In its statement RBI said that technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, 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.

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. RBI will be issuing circular in this regard for further details.

Here’s everything BP Kanungo (Deputy Governor of the Reserve Bank of India (RBI)) said:

“Regarding Ring-Fencing regulated entities from virtual currencies, digital tokens issued by private parties are getting international attention for quite some time, for their speculative value. Internationally, the regulatory response to these tokens are not uniform. It is universally failed that it is seriously undermine the airmail and FATF framework, adversely impact market integrity and capital controls. If they grow beyond a critical size they can financial stability as well. In the past RBI had cautioned on three occasions the members of public regarding the various risks they are undertaking by exposing themselves to cryptocurrency. Now we have decided to ring-fence the RBI regulated Entities from the risk of dealing with entities associated with dealing with virtual currencies. They are required to stop having relationship with entities dealing with virtual currencies within three months.

However, we also recognise the Blockchain technology, of the distributed ledger technology that lies beneath the virtual currencies has potential benefits for financial inclusion and enhancing the efficiency of financial system, and we also believe they should be encouraged to be exploited beneficially to the economy.

Staying on the digital currency, in response to the emergence of private digital tokens, all over the world several central banks are debating the possibility of introducing a fiat digital currency as opposed to the private digital tokens like the ones I just spoke about. These are issued by the central bank that constitute the liability of the central bank and they will be in circulation in addition to the paper currency that we have. It also holds the promise of reducing the cost of printing of the note. So recognising this, we have constituted an inter-departmental committee in Reserve Bank of India which will product a report and they will explore the feasibility and desirability of issuing a digital currency by the Reserve Bank of India and to guide us in this matter in future.”

Recently, several banks have banned their customers for buying and selling of cryptocurrencies. Citi Bank in email to its customers has said that credit and debit cards cannot be used to purchase cryptocurrencies. It has been reported that RBI has warned banks about cryptocurrencies in January, telling them to step up scrutiny of financial transactions by companies and exchanges involved in the trade of bitcoins and similar digital tender.

 

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