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RBI expresses concern over crypto currencies & stresses need to regulate them

bitcoins

The Reserve Bank of India (RBI) has expressed concern over cryptocurrencies such as Bitcoin and has stressed the need to regulate them. Speaking at an event, deputy governor R Gandhi said that crypto currencies have the potential to support criminal activities in money laundering, terrorist funding and tax evasion.

“Crypto currencies have been widely suspected to finance criminal activities. We have to be carefully and critically watching these developments. That is why I said these innovative developments which have the potential to be disruptive, may not be of so desirable, or may be of questionable, relevance and merit,” Gandhi added.

At the same event, deputy governor SS Mundra also added that said there was a need to identify the grey zone areas in cryptocurrency quickly and to share experiences between different regulators to ensure consumer protection, as indicated by this EconoTimes report.

Earlier last week, RBI Governor Raghuram Rajan also mentioned that the apex bank is closely monitoring crypto currencies but has so far not intervened in them. “I would like to say that our philosophy is if it is small then let it develop, let us see how it works and then take a view. That was our attitude towards crypto currencies. It was very very small,” Rajan was quoted saying by the Press Trust of India.

Earlier in December 2013, the 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.

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Developments in crypto currencies

– In January 2014, Income Tax department was looking at how they can impose tax on Bitcoin miners in India in the long run. However, they said they will not start this until the RBI gives a clean chit to the virtual currency. The IRS department officers initiated discussions when they visited the offices of Sathvik Vishwanath, CEO and founder of Coinmonk and Unocoin. IRS  at the time were thinking of imposing tax based on the currency’s value at the time of mining. Vishwanath has asked them to authorize Bitcoin exchanges in India first, so that people can convert the currency they have mined into Rupees immediately.

– Around the same time, the Enforcement directorate raided the office of Buysellbit.co.in and RBItco, websites that let people buy and sell bitcoin. According to ED, these website were in violation of Foreign Exchange Management Act (FEMA) rules as the central bank does not provide permission to make such transactions.

– In the same month, a notice was sent to the RBI seeking clarification on various aspects around Bitcoin. RBI was asked if it plans to treat virtual currency – as a foreign currency, domestic currency, private currency, commodity, software program or as an electronic document. It was also asked if RBI has the power to regulate virtual currencies and if so, under what law.

– In February 2014, Bitcoin exchange Mt Gox went offline and stopped operations. According to a leaked document 744,408 Bitcoin worth $375 million are missing due to malleability-related theft which went unnoticed for several years.

– In July 2015, Citibank said that it  is running a test platform for digital currencies and is planning its own solutions called CitiCoin. The bank claims to have already constructed three blockchains and a test currency to run across them. These systems are still in the test phases with no real money passing through them. Citibank mentioned that the technology behind Citicoin is not patented and will remain open source. The bank also mentioned that it is currently working on digitising payments and transactions across five domains of which blockchain is only one. However, the bank did not reveal these other ‘domains’.

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Image source: Flickr user BTC Keychain

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