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RBI Bans Banks From Processing Cryptocurrency Transactions

India’s Central Bank, The Reserve Bank of India (RBI) has just about banned cryptocurrencies in the country after it released a notice on Thursday barring banks and financial institutions in the country from dealing in cryptocurrencies which includes Bitcoin.

In a statement, the RBI said

In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall 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 within a specified time.

Financial analysts expect that a circular about the specifics of the ban will be released soon. The banning won't be instant as the RBI will be giving everyone a chance to unwind their business relationships. They will have three months to get rid of their cryptocurrencies.

The RBI's decision is to stop any RBI-regulated financial institution from any risk of dealing with virtual currencies. The grace period should be enough for cryptocurrency players to wind up operations and dispose of their cryptocurrencies.

RBI Had Issued Numerous Warnings

The Indian government and the Reserve Bank have actually issued quite a few warnings about using cryptocurrencies in recent months. These warnings have even compared Bitcoin to a Ponzi scheme. The most recent warning from the RBI saw them warning users of the financial and economic risks of cryptocurrencies. The RBI has also been very open that they have not given any license to any company to create or deal in any cryptocurrencies.

While India has effectively banned the operation of cryptocurrencies in the country, the RBI does recognize how important the blockchain technology behind Bitcoin is. RBI has encouraged financial institutions to use the distributed ledger tech to better enhance the efficiency of financial systems. The regulator also announced that they have set-up a committee to check out the possibility of issuing a digital currency backed by the central bank. This is in line with the global consensus among central banks all across the world about introducing a digital currency. If this is done, the resulting token would be the equivalent of paper currency and would save on their printing.

This is the second setback for the cryptocurrency industry in India. Finance Minister Arun Jaitley outlawed the use of cryptocurrencies in the country in February 2018 when he presented the 2018 Union Budget.

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