RBI says all regulated entities will have to stop dealing in virtual currencies from July 6

Reserve Bank of India (RBI) regulated entities will have to discontinue dealing in virtual currencies, including Bitcoins, and stop providing services to any person or company dealing with digital money by July 5.

“Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer / receipt of money in accounts relating to purchase/sale of VCs,” RBI said in a notification on Friday.

In a bid to ring-fence regulated entities, on Thursday after the monetary policy announcement, RBI said, “In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs.”

The central bank released the guidelines stating, “Regulated entities which already provide such services shall exit the relationship within three months from the date of this circular.”

Here is what experts are saying on RBI's move?

On at least three occasions - December 24, 2013, February 01, 2017 and December 05, 2017 - RBI had cautioned users, holders and traders of various risks associated in dealing with digital money.

These instructions were issued in exercise of powers conferred by sections of Banking Regulation Act, 1949 and Payment and Settlement Systems Act, 2007.

Government and public interest in cryptocurrencies

In a move to regulate the cryptocurrency market in India, Finance Minister Arun Jaitley clarified in his Budget speech that it is not legal tender and the government will discourage its use. However, he had mentioned that the government will look at the utilisation of blockchain technology.

There has been rising interest among investors to infuse money into the highly volatile cryptocurrency market setting off alarm bells.

Digital currency, led by Bitcoin, which has been the most popular among the options available, has gained immense popularity globally. However, the underlying assets have been highly volatile with price movements swinging wildly on news flow.

Globally, there has been a move to clamp down on crypto trading, with countries such as South Korea banning anonymous trade in such currencies.

There have concerns over the safety of investors’ accounts as on several occasions accounts of investors have been hacked by criminal elements who have fled with investor wealth. Currently, there is no way to retrieve the money lost to hackers.