The Reserve bank of India, India’s central bank, ordered all the banks to cease trade in cryptocurrencies. All financial institutions regulated by the RBI have to stop their banking relationships with crypto investors and companies with immediate effect. Those who are already involved in such relationships have been given a three-month timeline to say goodbye to virtual money.
The RBI also announced new research which will explore the possibilities for the launch of a new domestic digital currency. Meanwhile, the news led to panic in the Indian markets where many currencies dropped by as much as 20% and panic selling induced in the market.
RBI created an interdepartmental group to investigate and advise on “desirability and feasibility” for introducing a “central bank digital currency.” The research team will submit its reports by the end of June 2018.
BP Kanungo, Deputy Governor, said, “We have decided to ring-fence the RBI regulated entities from the risks of dealing with virtual currencies. These operators are required to stop having a business relationship with the entities dealing with virtual currencies forthwith and unwind the existing relationships within three months.”
He further added, “Several central banks are debating the possibility of introducing a fiat digital currency. As opposed to private digital tokens, these are issued by a central bank. They constitute the liability of the central bank, and they will be in circulation in addition to the paper currency that we have.”
The authorities are confident backing the idea of a fiat backed digital currency in order to minimize the costs of printing and circulating paper currency. It is looking forward to using the underlying blockchain technology to boost the wider economy and financial ecosystem. According to a deputy minister, the government is focused on introducing a new virtual currency “Laxmi.”
Previous warnings had zero net effect
The RBI released three different warnings to the masses which aimed to discourage them from using digital currencies. Earlier this year, Arun Jaitley, Finance Minister India, acknowledged cryptocurrencies as an illegal tender of money and advised Indians on not undertaking its trade. In his budget speech on February 1, he recognized crypto money as illegitimate and asked people to entirely reject its usage. However, most of the crypto enthusiasts continued the trade regardless.
After Jaitley’s speech, some of the top Indian banks like SBI, HDFC Bank, and the American lender Citi stopped supporting any transaction related to virtual money which pulled down the domestic crypto trading by 90 percent.
In a similar report in swissinfro.ch, it was informed that banks in US relate cryptocurrencies with privacy issues. Fed Governor Lael Brainard, termed it as extremely volatile which needs thorough investigation before any action. The Swiss National Bank has already acknowledged crypto as too risky and does not hope to issue a new digital fiat currency.
The European Central Bank also sees crypto as a risky venture which should not be handled by a central bank. The Chinese authorities are closing down all the crypto mining activities and banning crypto trade while claiming central bank’s full control over virtual money.