India's central bank bans financial firms from dealing with cryptocurrency

On Thursday, the bank regulator had released a statement directing all regulated entities, including banks, e-wallets, and payment gateway providers, to stop dealing with individuals and businesses in the partially banned cryptocurrencies.

An interdepartmental group has been constituted to study and provide guidance on the "desirability and feasibility" to introduce a "central bank digital currency" and will submit its report by June, the central bank said.

Though the directive has come into effect, it is important to note that banks and non-banking entities have been given three months to conclude their dealings in digital currency.

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 Reserve Bank of India (RBI) has now issued a statement stating that it will not deal with or provide any service to the entities dealing with any cryptocurrency such as Bitcoin. Besides, the fact that a range of countries preliminarily restricted the cryptocurrency market had a great influence on the Indian central bank. Praveen Kumar, founder of the Singapore-based crypto-currency exchange Belfrics, called it a "bad move". In early February, false reports in the media of a country-wide crypto ban in early February led to a drop in the crypto markets. Regulatory bodies in countries like China, South Korea and Canada have, during the past year-and-a-half, imposed a partial or complete ban on cryptocurrencies.

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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. "In the long run keeping the above in light the digital currencies which have a certain usefulness towards their utility/usage will be the ones that will have a shot at the silverline and more prone to acceptability". On the fiat currency that the RBI has proposed, he said having such a currency will also reduce the cost of printing and circulating paper currency.

"Several central banks are debating the possibility of introducing a fiat digital currency as opposed to the private digital tokens".

"We can not comment on the times ahead but there is no need to panic, RBI has just reiterated what they have already implemented, THERE IS NO BAN ON BITCOIN in India as of yet, there is no official stand of the government on this", the exchange said.

  • Megan Austin