India Bans Banks from Processing Cryptocurrency Purchases

Laverne Mann
April 7, 2018

The Reserve Bank of India has issued an order preventing banks and all other financial entities in India from dealing with cryptocurrencies, whether it is individuals or companies holding such digital assets and trying to park them with these institutions. The Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including bitcoins, regarding various risks associated in dealing with such virtual currencies.

The decision came on back of the RBI's observation that only certain payment system operators and their outsourcing partners in the country store the payment system data.

Meanwhile, the same RBI statement on the end of its association with crypto dealings adds that the bank will be looking into creating its own state-backed cryptocurrency, "in addition to the paper currency that we have", Kanungo notes, with a report to be submitted on its feasibility by the end of June 2018. Regulated entities which already provide such services shall exit the relationship within a specified time.

"We recognise that blockchain technology or the distributed ledger technology that lies beneath the virtual currencies has a potential benefit for financial inclusion and enhancing the efficiency of the financial system".

There were media reports that the government is mulling the introduction of its own virtual currency called "Laxmi", the deputy govenor said.

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The central bank also said that in light of the emergence of private digital tokens and rising costs of managing fiat paper and metallic money, central banks around the world are exploring fiat digital currencies and it would explore the same.

As a result of the ban, traders will no longer be able to deposit or withdraw fiat currency at cryptocurrency exchanges, forcing them to use peer-to-peer (P2P) trading platforms such as LocalBitcoins.

The RBI's ban on Bitcoin and cryptocurrency dealings does not mean Indians can not still get ahold of the digital currency through other means.

At the same time it made this announcement, the RBI also pushed local banks and other financial institutions to stop providing their services to people and businesses that are involved in cryptocurrency trading.

Neither is India alone in unleashing a regulatory crackdown on cryptocurrencies.

Other reports by MaliBehiribAe

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