RBI cautions against use of bitcoins, other virtual currencies

February 2, 2017

The Reserve Bank of India (RBI) has cautioned the users of virtual currencies, including bitcoins, pointing out that it has not issued any licence or authorisation to any company to trade in these and that the users are doing it at their own risk.

“The Reserve Bank of India advises that it has not given any licence or authorisation to any company to operate such schemes or deal with bitcoin or any virtual currency,” the Reserve Bank of India said in a statement on Wednesday.

“As such, any user, holder, investor or trader dealing with virtual currencies will be doing so at their own risk,” the central bank warned.

The RBI had earlier cautioned the users, holders and traders of virtual currencies, including bitcoins, about the potential financial, operational, legal, customer protection and security-related risks that they are exposing themselves to.

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“The Reserve Bank is presently examining the issues associated with the usage, holding and trading of virtual currencies under the extant legal and regulatory framework of the country, including foreign exchange and payment systems laws and regulations,” it said.

There have been several reports of usage of these currencies for illicit and illegal activities in several jurisdictions, which could subject the users to unintentional breaches of anti-money laundering laws and laws combating the financing of terrorism, it added.

“The creation, trading or usage of virtual currencies, 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,” the RBI said.

Virtual currencies being in digital form are stored in electronic media that are called e-wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials and malware attack.

Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in permanent loss of the currency held in those.

Payments by these currencies 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 disputes.

There is also no backing of any asset for virtual currencies.

“As such, their value seems to be a matter of speculation. Huge volatility in their value has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value,” the RBI said.

Bitcoins are being traded on exchange platforms set up in various jurisdictions whose legal status is unclear. Hence, its traders are exposed to legal as well as financial risks.

The central bank has said that it has been looking at the developments relating to certain electronic records of virtual currencies such as bitcoins, litecoins, bbqcoins and dogecoins, their usage and trading in the country.