The Reserve bank of India (RBI) has no plans to come up with a regulatory framework for Bitcoins, the so-called virtual currency that the monetary authority does not recognise, RBI deputy governor KC Chakrabarty said.
On the other hand, RBI had, on 24 December, issued an advisory cautioning the general public against using them due to potential money laundering and cyber security risks, he noted.
The proponents of Bitcoins, meanwhile, said the value of Bitcoins has risen sharply over the past few months.
"Regulation comes only when people are doing certain business and we come to understand that something wrong is happening. First of all we don't understand this subject," Chakrabarty said.
"But, at present, what we are saying is neither we regulate them nor we support them," he said on the sidelines of an interaction session with entrepreneurs organised by the Indian Overseas Bank in Coimbatore on Saturday.
Chakrabarty said regulations on Bitcoins have not been imposed anywhere in the world and those who understand it and take a risk are free to do so with their money. "Whether it is... legal or illegal, we don't know. If it crosses the limit of legality then people may face a problem. So people should be cautious, should understand," he said.
Following RBI warning, a number of entities offering Bitcoin services have suspended operations temporarily or indefinitely.
On the potential of cyber fraud involving Bitcoins, the RBI official said it was an issue that has to be tackled by the security agencies of the government.
The RBI had warned users, holders and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection and security-related risks that they are exposing themselves to.
RBI said it has been looking at the developments relating to certain electronic records claimed to be ''Decentralised Digital Currency'' or ''Virtual Currency'' (VCs), such as, Bitcoins, Litecoins, Bbqcoins, Dogecoins, etc, their usage or trading in the country and the various media reports in this regard.
The creation, trading or usage of virtual currencies, including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority, RBI said, adding that no regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities.
As such, they may pose several risks to their users, including the following:
- Virtual currencies being stored in digital/electronic media are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack and since they are not created by or traded through any authorised central registry or agency, the loss of the e-wallet could result in the permanent loss of the virtual currencies held by them;
- Payments by virtual currencies such as Bitcoins take place on a peer-to-peer basis without an authorised central agency to regulate such payments. As such, there is no established framework for recourse to customer problems / disputes / charge backs etc;
- There is no underlying or backing of any asset for virtual currencies and their intrinsic value seems to be a matter of speculation.
- Since Bitcoins and other virtual currencies are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear, traders on such platforms are exposed to legal as well as financial risks.
There have already been several reports of the misuse of virtual currencies, including Bitcoins, for illicit and illegal activities and the system could subject users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws.
The RBI said it is presently examining the issues associated with the usage, holding and trading of virtual currencies under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.