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Reserve Bank of India cautions users against bitcoin
The Reserve Bank of India (RBI) has issued a fresh notice to the users of virtual currencies in the country, urging them to exercise high caution when engaging in digital currency-related activities.
The recent warning follows the much-debated demonetization drive in the country in which the government banned the circulation of previously issued currency notes of 500 and 1,000 denomination. These have been replaced by fresh currency notes of 500 (with new design and features) and 2,000 denomination.
The temporary cash crunch resulting from the demonetization move saw a sudden spike in bitcoin demand. Indian bitcoin exchanges including Zebpay and Unocoin saw increased web traffic and app downloads. Furthermore, bitcoin price in India was being quoted at nearly 25-28% premium, as compared to global rates.
“The Reserve Bank of India advises that it has not given any licence / authorisation to any entity / company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk”, the RBI said.
Earlier in 2013, the central bank had said that it was looking into the developments relating to “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as Bitcoins, their usage or trading in the country and the various media reports in this regard.
“The creation, trading or usage of VCs including 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. As such, they may pose several risks to their users”, it said at the time.
The central bank, however, is exploring bitcoin’s underlying blockchain technology. Institute for Development and Research in Banking Technology (IDRBT), an arm of the RBI, earlier this month revealed that it organized a workshop on blockchain technology aiming to prepare a white paper on implementation of the technology in the areas of banking and finance in India.
IDRBT also outlined a prospective roadmap for the adoption of blockchain technology to banking and finance in India. This includes setting up of private blockchain by banks for internal purposes; interbank proof-of-concept implementation and testing in areas such as Know Your Customer (KYC), cross-border payments, syndication of loans, trade finance, and capital markets. In addition, the institute has also attempted a Proof-of-Concept (PoC) on the applicability of blockchain technology to a trade finance application with active participation of NPCI, banks and solution provider.