RBI issued a warning that it will not regulate any Virtual Currency including Bitcoin in India and warned people who were dealing with the currency in India of the risks involved, saying that they’re exposing them to financial, legal, operational and security related risk. On December 24, RBI stated in the advisory that it had been “examining the issues associated with the usage of virtual currencies” under the legal and regulatory framework of the country. It said that the creation, trading or usage of virtual currencies including Bitcoin are not authorised by any central bank or monetary authority and added that there is no established framework for recourse to customer problems.
The main points raised by RBI were:
– Since they are not created by or traded through any authorised central registry or agency, there is no way to get back stolen coins.
– There is no established framework for recourse to customer problems / disputes / charge backs etc.
– Users are exposed to potential losses on account of volatility in value of these currencies.
– Bitcoin exchanges are set up in various jurisdictions whose legal status is also unclear. So all traders are exposed to legal and financial risk.
– Usage of Virtual Currencies for illegal activities.
– Users subjected to unintentional breaches of laws such as anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
Later in December ToI had quoted RBI deputy governor KC Chakrabarty as saying that RBI still doesn’t know if Bitcoin operations in India are legal or not. “Whether it is… legal or illegal, we don’t know. If it crosses the limit of legality then people may face a problem. So people should be cautious, should understand,” he said. This however, contradicts an earlier statement by an RBI spokesperson which stated that RBI doesn’t consider it to be a legal tender and, therefore “trading in Bitcoin is not legal. Obviously, there cannot be regulations from RBI for an illegal activity. People who use it, do so at their own risk and responsibility.”
The RBI has clearly not yet taken a decision on whether it wants to ban bitcoins or regulate them, but this statement is an indication that it is working towards a decision: eventually, we might either see the RBI create a regulatory framework for bitcoins and virtual currency, or we might see an outright ban on them. The RBI tends to be cautious and conservative with such decisions, and the first step for the regulator is to warn bitcoin buyers that as of now, they have no protection under law, so they should proceed with caution. The next step is anybody’s guess.
Here is the full advisory issued by RBI:
The Reserve Bank of India has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.
The Reserve Bank has mentioned that it has been looking at the developments relating to certain electronic records claimed to be “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., 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, including the following:
- VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.
- Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorised central agency which regulates such payments. As such, there is no established framework for recourse to customer problems / disputes / charge backs etc.
- There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.
- It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.
- There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.