RBI Contemplates “Central Bank Digital Currency” But Bans FIs From Dealing With Crypto
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The Reserve Bank of India (RBI) said on Thursday that it is considering the introduction of a “central bank digital currency,” stating that technological innovations, including cryptocurrencies and blockchain, have the potential to improve the efficiency and inclusiveness of the financial system.
The RBI said in a statement:
“While many central banks are still engaged in the debate, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency. The report will be submitted by end-June 2018.”
RBI deputy governor B P Kanungo said the digital currency would be issued by the central bank and considered the liability of the central bank. “They will be in circulation in addition to the paper currency that we have. It also holds the promise of reducing the cost of printing notes,” he said, quoted by Bloomberg Quint.
The RBI joins a growing list of central banks around the world contemplating the possibility of a nation blockchain-based digital currency. Singapore unveiled plans to introduce a tokenized form of the Singapore dollar (SGD) on a distributed ledger back in 2016. China is reportedly developing its own digital currency despite having banned initial coin offerings (ICOs) and stopped cryptocurrency exchanges from operating on its shores last year.
At the same time, the central bank has formally banned regulated entities such as banks from dealing with or providing services to individuals or businesses dealing with digital currencies. The authority has given a three-month period to banks to unwind their existing relation.
“Virtual currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others,” the RBI said.
“Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including bitcoin, regarding various risks associated in dealing with such virtual currencies.
“In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs.”
The RBI said it will issue detailed guidelines in a circular soon.