The Reserve Bank of India has banned regulated financial institutions in the country from dealing with cryptocurrencies, CNBC reported.
“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 [virtual currencies],” the bank wrote in a statement.
Institutions that currently provide services related to cryptocurrencies will have to end those relationships “within a specified time.” The bank said a circular with more information is being issued separately.
In February, the government said it would “take all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system,” India’s finance minister said February, per a transcript from The Hindu newspaper.
And, in December, India’s finance ministry had decried bitcoin trading (and other associated cryptocurrencies), claiming that it is, at base, the same as buying into a Ponzi scheme. Cryptocurrencies are not legal tender, the finance ministry noted in a statement, and therefore offer users absolutely no governmental protections.
Investors and other participants in the digital currency world do so “entirely at their risk and should best avoid participating therein,” the ministry had said. The warning, while strongly worded, stopped short of announcing an outright ban or imposing any curbs at the time.
“There is a real and heightened risk of an investment bubble of the type seen in Ponzi schemes,” the statement noted – particularly in how bitcoin, like Ponzi schemes, is always vulnerable to a big, unexpected crash. Moreover, the finance ministry noted, the use cases for cryptocurrencies like bitcoin are largely illegal. Bitcoin, it noted, is especially useful if one wants to do a whole list of legally verboten activities: “terror-funding, smuggling, drug trafficking and other money laundering acts.”