After a lot of drama between the Reserve Bank of India, the Indian Government and the Indian public at large with regards to cryptocurrencies, the Reserve Bank of India, which is the apex bank of the country, finally declared on the 5th of April that regulated financial institutions operating out of the country are now prohibited to deal with digital currencies.
According to an announcement brought forward by the central bank, financial companies operating in India for the Indian public and which are regulated under the laws and regulations of the RBI, would be now barred from providing services and products to individuals and companies and any one dealing or settling virtual currencies. They say the move is in light of associated risks and scams associated with cryptocurrencies and is designed to protect users.
The bank also added in the announcement that financial companies who already provide services to such individuals or companies would need to stop doing the same and end their relationships in a time period that would be specified by the bank soon in a separate notice to be issued later.
Digital currencies came under increased scrutiny by RBI as well as other Indian governmental agencies post their meteoric rise late last year which was led by Bitcoin, which rose to around $20,000 in December 2017. The current value of Bitcoin is around $6,800.
The underlying principle of digital currencies which is the fact that they do not have a central backing authority and are decentralized. They are also designed to circumvent different governmental policies and red tape and to enable direct person to person transactions.
It was earlier announced by the Indian finance minister, Arun Jaitley, that cryptocurrencies, including Bitcoin, are not legal tender in India. The government has also issued a plethora of warnings and advisories warning the Indian public not to invest in digital currencies owing to their volatile and risky nature.
The government also said that these currencies were causing issues in terms of consumer protection, money laundering and market integrity. The finance minister had also announced the government’s plans in February to prohibit the use of such currencies for the finance and backing of anti-social activities in the country.
India’s Income Tax Department had sent notices to thousands of Indian citizens informing them of the taxes due in lieu of the large amount of cryptocurrency transactions they had done in 2017 and beyond. It had been found in surveys that cryptocurrency transactions worth more than $3.5 billion had been performed in the country in a time period of 17 months.
RBI says that this announcement is designed as a part of a larger plan to strengthen the regulation of the financial market in India. It has also spoken positively about the underlying technology behind cryptocurrencies, the blockchain and have realized its potential in the financial system.
