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RBI concern over virtual currencies

Mumbai, Dec. 24: Virtual currencies such as Bitcoins raise not only financial and regulatory risks but also concerns from the standpoint of national security, the Reserve Bank has warned.

In a statement issued today, the RBI said no central bank in the world had authorised the creation, trading or use of digital currencies such as Bitcoins, litecoins, bbqcoins and dogecoins.

“No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying out such activities,” the RBI said, adding that it is closely following the developments on this front.

Stating that virtual currencies have no underlying or backing of any assets and their value seems to be a matter of speculation, the RBI cautioned users that they could be exposed to potential losses on account of volatility in value.

“Since virtual currencies are stored in digital or electronic media, called electronic wallets, they are prone to losses arising out of hacking, loss of password, compromise of access credentials and malware attack,” the RBI said.

Payments in virtual currencies take place on a peer-to-peer basis, which are not regulated by any centralised agency. Further, there is no framework to settle customer problems or disputes.

According to the RBI, the traders of virtual currencies use exchange platforms set up in various jurisdictions, whose legal status is unclear.

There have also been reports of the use of virtual currencies, including Bitcoins, for illicit and illegal activities.

“The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws,” it observed.

The RBI is now examining the issues associated under the existing legal and regulatory framework of the country, including foreign exchange and payment systems laws and regulations.

Meanwhile, the RBI today allowed Indian entities to issue tax-free bonds to overseas resident for investment in infrastructure sector.

However, it said, the fund raised has to be used for lending to the infrastructure sector.

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