BP Kanungo, the Deputy Governor of the Reserve Bank of India (RBI) just announced that entities regulated by RBI shall not deal with or provide services to any individuals or services dealing with or settling virtual cryptocurrencies. All Banks are regulated by the RBI and hence, they will not be allowed to provide their services to Cryptocurrency exchanges.
At this point, it is too early to call it a complete ban on Cryptocurrencies in India. We need to wait for further confirmation on this, since it was not discussed in detail. He also said existing entities should terminate their relationships within 3 months.
He spoke in favour of Blockchain but not Cryptocurrencies because it is not possible for them to regulate it.
Towards the end, he also mentioned that an inter-departmental committee has been formed to explore the feasibility and the desirability for a virtual currency issued and backed by the government.
Here’s everything BP Kanungo 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.
Planing own Crypto Coin
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.”
The move has a “demonetisation” like effect on cryptocurrencies, according to Vishal Gupta, co-founder of the Digital Assets and Blockchain Foundation of India. “That effectively means people lose ability to conduct any trade or exchange, at least in the open market,” he told BloombergQuint in an interview.
These have become dead assets for people who are holding onto them. This is going to have huge repercussions. If you disallow trading there is no exit to this.