The Reserve Bank of India (RBI) announced in a press release Thursday that all banks and regulated financial entities would now be strictly prohibited from facilitating transactions involving cryptocurrencies.
”Cryptocurrencies comes with associated risks”
Press release details note that the decision was made because of what is described as ”associated risks” of cryptocurrencies. The ban on dealings or settlings in digital currency is effective immediately, impacting all entities under the regulation of the RBI.
The singular exception to the rule are regulated entities that already provide financial transfers to cryptocurrency wallets or exchange platforms. RBI deputy governor BP Kanungo announced on Thursday at a press briefing that such service providers will be given a provisional three months to cut ties with such clients.
Kanungo went on to discuss the possibility of the Central Bank of India launching what he refers to as ”fiat digital currency” with the liability of the bank. He noted that this would be an environmentally-friendly option, as it could reduce the amount of paper used as opposed to traditional currency. The viability report for this is scheduled to be available in June 2018.
Blockchain technology, however, is an initiative that Kanungo supports. He said in the same briefing that blockchain developments should be encouraged and exploited.
Cryptocurrency in India
Bitcoin, in particular, has suffered past criticism from banking authorities. The central bank has repeatedly issued warnings to cryptocurrency investors over the potential volatility of the market. HDFC and Citi Bank have both restricted clients from purchasing Bitcoin via their debit and credit cards.
Despite the prohibition on banks handling digital currency assets, government officials in India recently reiterated the law requiring cryptocurrency investors to pay taxes on their holdings. In December 2017, the income tax authorities of India issued tens of thousands of tax notices to investors following surveys conducted of the country’s nine largest cryptocurrency exchanges.