On Tuesday the Reserve Bank of India (RBI) issued a statement warning the public against the use virtual currencies. The bank cautioned users, holders and traders of virtual currencies about the potential financial, operational, legal, buyer protection and safety related dangers they are exposing themselves to.
The bank pointed out that it has been keeping a close eye on developments in the virtual currency world, like bitcoins, litecoins, bbqcoins, dogecoins and other altcoins.
“The creation, trading or usage of VCs which includes Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities.”
RBI outlines digital currency dangers
The RBI outlined numerous possible dangers associated to digital currencies, echoing warnings issued by several central banks and national regulators over the last couple of weeks. The bank particularly identified the following risks:
- Digital currency stored in wallets is prone to theft and loss via misuse or malicious intent, ranging from loss of password, hacking, malware and compromised access credentials.“Since they are not developed by or traded by way of any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the virtual currencies held in them,” the RBI mentioned.
- Payments and transactions handled in digital currencies take location on a peer-to-peer basis without having an authorised central agency to regulate such payments. For that reason there is no established framework for recourse to customer problems / disputes / charge backs and so forth.
- There is no underlying worth or backing for digital currencies. As they lack intrinsic worth, the bank warns that their worth is a “matter of speculation.” The bank adds that enormous volatility in worth exposes customers to possible losses.
- Exchange platforms are set up in various jurisdictions and in many cases their legal status is unclear. This implies users of such platforms are exposed to potential legal as properly as monetary risks.
The RBI also pointed out that there have been “several media reports” on the usage of digital currencies for illicit and illegal activities in many jurisdictions.
“The absence of data of counterparties in such peer-to-peer anonymous/ pseudonymous systems could topic the customers to unintentional breaches of anti-cash laundering and combating the financing of terrorism (AML/CFT) laws,” the bank warned.
Prospective implications
The Reserve Bank of India says it is in the approach of examining concerns connected with digital currencies, which includes usage, holding and trading of virtual currencies under India’s current regulatory framework. Applicable legislation includes foreign exchange and payment systems laws and regulations.
There are a few exchanges and trading platforms in India and most of them have been launched earlier this year. Despite the fact that they tend to allow users to purchase bitcoin in rupees, none of them appear to have regulatory approval to do so. Nonetheless, since India does not have digital currency legislation, it is impossible to get such approval, unless Indian regulators determine to apply existing foreign exchange regulations to bitcoin.
For now though, India does not have bitcoin regulation and it is unclear whether or not the RBI’s statement will adjust anything moving forward.
View Reserve Bank of India Problems Virtual Currency Warning on CoinDesk.
Reserve Bank of India Concerns Virtual Currency Warning
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