The Reserve Bank of India (RBI) has effectively banned any dealings in cryptocurrency via banks or e-wallets in the country stating "dealing with or providing services to any individuals or business entities dealing with or settling virtual currencies".
After the ban, the darknet concerns are real as cryptocurrencies are still being traded frequently in China, despite the ban. In fact, the bank has even added that it is planning on releasinng their own cryptocurrency.
The RBI believes it has many potentially-beneficial applications but argues that cryptocurrencies raise a number of concerns. Nevertheless, the central bank does acknowledge the potential cryptocurrencies have when it comes to improving transaction efficiency.
The step has been taken following several stern warning issued by the RBI a year ago to investors about the risks associated with such schemes.
The RBI, which has come out with three specific warnings to discourage public from investing in the virtual currencies, today announced a "ring-fencing" of the countrys financial system from the private virtual currencies, which have been called as illegal by Finance Minister Arun Jaitley. As per the first bi-monthly monetary policy for the FY 2018-19, RBI has banned the regulated entities to stop providing services to any individual or business dealing in digital currencies like bitcoin with immediate effect. RBI's statement allows for a transition arrangement, in which the existing relationships of any kind these banks and the other institutions may have, with those dealing in cryptocurrencies will have to be terminated. However, RBI Deputy Governor BP Kanungo pointed out his intention to stimulate the development of the blockchain technology.
India's central bank said the currencies' underlying blockchain technology made it hard to protect consumers from scams, and to prevent money laundering. Because of this, Panjak Jain, who works as an advisor and investor, posted a tweetstorm regarding the issue.
The decision came on back of the RBI's observation that only certain payment system operators and their outsourcing partners in the country store the payment system data. The proposed digital currency can be used like any physical currency.
In an effort to reduce corruption, Indian authorities in 2016 said they would withdraw all 500 and 1000 rupee banknotes from use-rendering some 85% of all currency in circulation worthless overnight, unless deposited at a bank.