In what could be seen as big blow to cryptocurrency enthusiasts in India, RBI, on Thursday, announced its monetary policy wherein it said that it will not deal with or provide services to any individual or business entities dealing with or settling virtual currencies, which means that the central bank will stop the trade of cryptocurrencies by the institutions governed by it.
The RBI has given banks a time-frame of three months to implement the decision and said it was taking the step to ring-fence banks.
“RBI regulated institutions are required to stop having business relations with the entities dealing in virtual currencies forthwith and unwind the existing relation in three months,” RBI Deputy Governor B P Kanungo said.
This bold move from RBI comes after several warnings — from both RBI and Finance Minister — to the public at large for being cautious while dealing with cryptocurrencies.
Soon after the announcement, the prices of bitcoin and other cryptocurrencies on Indian exchanges have crashed steeply. Moreover, the price of around 10 other cryptocurrencies such as — Ether, Ripple, Litecoin etc, has also fallen.
It is to be noted that once the RBI decision is fully implemented, the banks in India will not allow transferring of money to a crypto exchange to buy any such currency or to encash these by ssale or money transfer by using the NEFT or UPI route. All regulated agencies, RBI said, must cut all such dealings in three months.
Notably, there are around a dozen exchanges and about five million investors in India dealing with crypto exchanges. Several hold cryptocurrencies in the international market and outside India.
The move has a “demonetisation” like effect on cryptocurrencies, according to Vishal Gupta, co-founder of the Digital Assets and Blockchain Foundation of India (DABFI). “That effectively means people lose ability to conduct any trade or exchange, at least in the open market,” he told a business daily. DABFI is an Indian crypto currencies’ regulatory body formed in February last year by several virtual currency companies in India.
However, the RBI has kept a window open for digital currencies in the country.
In its statement on developmental and regulatory policies, the Reserve Bank of India said, “Rapid changes in the landscape of the payments industry along with factors such as the emergence of private digital tokens and the rising costs of managing fiat/paper/metallic money have led central banks around the world to explore the option of introducing fiat digital currencies.”
The above news was first reported in Business Standard.
In January, a nationwide survey in India has revealed that in last 17 months of period, people in the country have invested in Bitcoin and other cryptocurrencies worth whopping US$3.5 billion. Seeing this, the income tax department (in February) sent notices to tens of thousands of such people who have done trading in any of the cryptocurrencies.
Although, in April 2017, an intergovernmental panel was especially formed to work on the draft proposal of regulation of cryptocurrencies and had even submitted its plan on the matter to the Indian Finance Ministry in the first week of August. However everything gone in vain when, in August 2017, Indian Finance Minister clarified that there will be no law in circulation on the use of the popular bitcoin or any similar cryptocurrencies in the Indian subcontinent.
Despite of all this ban and blocking, in January a blockchain startup of Indonesian-origin called Pundi X announced that it is preparing to launch point-of-sale network in India so that people in the country can buy and invest in cryptocurrencies not just only online but offline as well.
Notably, RBI has said that it will issue detailed guidelines in a circular soon.
Nevertheless, India isn’t giving up on the idea of a virtual currency completely. In line with central banks around the globe, the RBI too is mulling introducing a fiat digital currency called ‘Lakshmi’ coin, which would become an alternative to the Indian rupee for digital transactions, and unlike bitcoin which is a non-fiat digital currency, the new one will be fiat-cryptocurrency.