RBI Gives Notice to Banks to Stop Processing Cryptocurrency Purchases

Indian residents can no longer purchase cryptocurrency through their bank accounts, according to new measures adopted by the country’s central bank.

The sweeping policy, announced on Thursday by the Reserve Bank of India (RBI), prohibits RBI-regulated institutions from allowing their customers to purchases cryptocurrencies, and it also bars banks from providing services to businesses “dealing with or settling [virtual currencies].”

From the statement:

“Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. 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. Regulated entities which already provide such services shall exit the relationship within a specified time.”

As a result of the ban, traders will no longer be able to deposit or withdraw fiat currency at cryptocurrency exchanges, forcing them to use peer-to-peer (P2P) trading platforms such as LocalBitcoins. According to data from CoinDance, LocalBitcoins transactions denominated in INR currently account for roughly $1 million in volume on a weekly basis.

The RBI statement acknowledges that blockchain technology has many potentially-beneficial applications but argues that cryptocurrencies raise a number of concerns related to consumer protection, market integrity, and preventing financial crimes.

“Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system,” the RBI said. “However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.”

According to News, India-based cryptocurrency trading volume had already plummeted by 90 percent in recent months as banks themselves had already begun to restrict the ability of cryptocurrency exchanges to secure access to financial services and locals to trade with funds stored in Indian bank accounts. However, until now, this blockade had not been codified into official government policy