Monday, 22 October, 2018

RBI bans cryptocurrency transactions for now. All you need to know

RBI cracks down on digital currencies plans own cryptocurrency | Video Bitcoin coins placed on Dollar banknotes are seen in this illustration. REUTERS Dado Ruvic Illustration
Faye Gross | 08 April, 2018, 01:01

On Thursday, the Reserve Bank of India mandated banks, e-wallets, and payment gateway providers to withdraw support for cryptocurrency exchanges and other businesses dealing with virtual currencies in India. The RBI is also exploring issuing its own digital currency as part of its efforts towards financial inclusion.

India's central bank has announced a ban on the sale or purchase of crypto-currency. The banks will need to achieve 50 per cent provision cover for those loans by end-June, said the bankers and the letter. RBI has already cautioned people regarding the financial and legal risks associated with virtual currencies.

For example, peer-to-peer marketplaces like Paxful connect buyers with sellers directly, cutting out the middlemen regulated by the likes of The Reserve Bank of India.

The RBI circular on analysis means that regulated entities such as banks, payment companies, and processing companies will not provide services to those dealing with Virtual Currencies.

Anyhow, keeping in view the uncertainties over regulation of cryptocurrencies in India, we had recently got incorporated in Australia, which has a clear policy on regulating digital currencies.

But at the same time, the RBI has said it will look at the feasibility of floating its own crypto-currency or digital currency in the near future.

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Essentially, India bans Bitcoin and cryptocurrency traders from depositing or withdrawing fiat currency at crypto exchanges.

The price of bitcoin fell to a low of 350,000 rupees (US$5,392) versus its global market price of US$6,617, following the RBI announcement, cryptocurrency exchange Coinome said.

It has set up a panel to investigate cryptocurrencies and plans to appoint a regulator to oversee unregulated exchanges.

The problem with cryptocurrency is that it has attracted a significant amount of interest but they float around in the financial system independent of the central banks.

The Unified Payments Interface (UPI) platform, which is being promoted by the government to push a digital economy in the country, is witnessing dynamic changes with the entry of players like Google Tez and WhatsApp.

Experts feel the RBI order will either completely shut down crypto-exchanges such as Zebpay, Unocoin, Coinex and Bitcoin India among 55 others, or they might trade using different cryptos: a user might buy bitcoin in exchange for other altcoins like litecoin or ripple. "They will be in circulation in addition to the paper currency and also holds the promise of reducing the cost of printing of notes".

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