India: Central Bank Bans Many Crypto Transactions

India’s central bank has forbidden all regulated entities from dealing with bitcoin

In its bimonthly monetary policy issued today, the Reserve Bank of India (RBI) stated that financial agencies and banks regulated by it will not “deal with or provide services to any individual or business entities dealing with or settling VCs (virtual currencies).” “Regulated entities which already provide such services shall exit the relationship with a specified time,” the policy stated. The bank cited concerns related to consumer protection, market integrity and money laundering as reasons for its decision. 

The measure could significantly drive down cryptocurrency trading in the country since it means that Indians will not be able to transfer funds from their bank account to crypto e-wallets for purchase or sale transactions. But the bank has not completely washed its hands of digital coins. It stated that virtual currencies have “the potential to improve the efficiency and inclusiveness of the financial system.” 

Regulatory Warnings

The legal status of cryptocurrencies is unclear in India. They are not banned, but regulatory authorities have repeatedly cautioned users and traders about their risks and disassociated themselves from transactions involving the financial instruments. For example, the RBI clarified that “no regulatory approvals, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities” in a December 2013 circular. (See also: India's Central Bank Issues Warning About Cryptocurrencies.) 

During his speech to present the budget earlier this year, Indian Finance Minister Arun Jaitley said cryptocurrencies were not legal tender and that the government would take all efforts to eliminate their use in “financing illegitimate payment systems or as part of the payment system.” The government’s income tax division also sent notices to individuals in January this year after a survey showed that $3.5 billion worth of transactions involving the cryptocurrency had taken place in the last year. 

India is home to approximately 1% of bitcoin miners. While crypto trading volumes at exchanges are nowhere near their counterparts in China or South Korea, they have witnessed stratospheric growth in the last year due to rising media chatter about cryptocurrencies. Zebpay, India’s largest cryptocurrency exchange, claimed to have added 200,000 users per day in January.

Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.01 bitcoin.

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