Breaking News: Reserve Bank of India Cautions Against Bitcoin

Reserve Bank of India seal, featuring Shere Khan
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Reserve Bank of India seal, featuring Shere Khan
Reserve Bank of India seal, featuring Shere Khan.

The RBI (Reserve Bank of India) just issued a caution against Bitcoin. The announcement can be viewed on their official website. The full text is as follows:

The Reserve Bank of India has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to.

The Reserve Bank has mentioned that it has been looking at the developments relating to certain electronic records claimed to be “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., their usage or trading in the country and the various media reports in this regard.

The creation, trading or usage of VCs 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, including the following:

  • VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.
  • Payments by VCs, such as Bitcoins, 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 problems / disputes / charge backs etc.
  • There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.
  • It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.
  • There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.

Ajit Prasad
Assistant General Manager

Press Release : 2013-2014/1261

US Dollars will buy a lot more Rupees since April 2013.
US Dollars will buy a lot more Rupees since April 2013.

As the Rupee is unlikely to do much better in 2014 than it did in 2013, and the Indian government seems powerless to prevent its citizens protecting their wealth in gold, it’s understandable that the RBI is concerned about Bitcoin rendering it obsolete.

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Former swing trader of equities and daytrader of futures, out to make it in this crazy crypto world. I'll be doing some chart-reading aka fortune-telling, plus some interviews with crypto developers and miners. And maybe even some cartoons. If you like the cut of my gib, visit my website (goldrhino.tk) and pick up a Ⓑ keychain or Ⓑ leather mousepad.