RBI plans its own digital currency; bans banks from dealing with cryptocurrency

RBI bans banks from dealing with cryptocurrency and issues a 3-month time frame to wind down their position with any cryptocurrency entity.

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The Reserve Bank of India announced that RBI-regulated entities will not deal or provide services to any individuals or business entities dealing with or settling virtual currencies." But not to be left behind in the digital currency race, RBI has formed an interdepartmental committee “that will explore the feasibility of issuing a digital currency by the Reserve Bank of India.”

RBI Deputy Governor, B P Kanungo in a media conference made it clear that the entities like banks have three months to withdraw their positions with cryptocurrency entities.

RBI had, on three occasions in the past, cautioned the public regarding the risks that they expose themselves with cryptocurrency.

However, RBI is in full support of Blockchain, the distributed ledger technology that is behind virtual currencies. Kanungo believes that blockchain "has potential benefits for financial inclusion and enhancing the efficiency of financial systems, and we also believe they should be encouraged to be exploited beneficially to the economy."

Banks have already disallowed

Indian banks have already taken the RBI warnings seriously though. HDFC Bank in a move last month banned the purchasing of cryptocurrencies through the customers' debit and credit cards. CitiGroup India too, in an email to its customers, said that they will be disallowed from buying and trading cryptocurrencies, stating economic, financial, operational, legal, customer protection and security related risks.

Indian banks aren’t the only ones cautious at the moment. A host of other international banks too have been precautious with dealing with bitcoins and disallowed its customers from associating with any cryptocurrency. Bank of America, Discover Bank and Lloyds Banking Group are few of the banks riding on the disallow bandwagon.

Cryptocurrency rates plummet

With the ban announcement though, the bitcoin prices have crashed on the Indian exchanges, reported Business Standard. The prices of 10 other currencies too have fallen, quoted at discounted rates. The last time RBI issued a mere warning, bitcoin rates plummeted 33 percent in India. This was also supported by the fact of China’s crackdown on cryptocurrency.

The future of Bitcoin may pretty much be a distant dream in India right now. However, RBI’s June-end report may ignite another hope for virtual currency.