RBI’s Stance on Bitcoins and Other Virtual Currencies

Earlier this month,
we had highlighted
some legal issues pertaining to Bitcoin, as that form of virtual currency has
been gaining ascendancy the world over. We had stated that the Reserve Bank of
India (RBI), as the currency regulator, would certainly be seized of the issue.
It now emerges that it is indeed the case.
Yesterday, the RBI
issued a press
warning users, holders and traders of virtual currencies (VCs),
including bitcoins, of the various risks they may be exposed to. After noting
that bitcoins and other VCs are not authorised by any central bank or monetary
authority, the RBI also states 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.” The RBI highlights some of the specific risks
and concerns with the use of VC, for which interested or affected readers are
advised to refer to the specific terms of the press release.

present effort is merely an interim one to serve as a caution to the public. It
is possible that a more detailed pronouncement regarding the legality and acceptability
of VCs under the banking, payment and foreign exchange laws can be expected in
due course. One cannot envisage anything but for the RBI to tread cautiously in
this field, which is beset with imponderables that leading financial regulators
around the world are grappling with.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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