The Reserve Bank of India (RBI) has barred banks and other financial entities from dealing in cryptocurrencies due to concerns related to consumer protection, money laundering and also to protect market integrity.

Finance Minister, Arun Jaitley had specifically declared cryptocurrencies as illegal in the Budget speech on February 1, 2018. The RBI has come out with warnings to discourage investments in digital currencies and top banks like HDFC bank, the American lender Citi, and SBI have virtually stopped supporting these transactions.

What are cryptocurrencies?

According to Wikipedia, cryptocurrencies are used primarily outside existing banking and government institutions and are exchanged over the internet. The validity and legality of this currency is still a debatable issue, and it differs from country to country. In Russia, for example, the legal tender to purchase goods is the Russian Ruble. However, cryptocurrencies are considered legal.

As of February 2018, China has halted its trading and banned initial coin offerings. Countries like South Korea and Japan have had severe concerns because its investors faced heavy losses as a result of trading. Bitcoin is one, among other cryptocurrencies like Litecoin, Zcash, Dash, Ripple, Ethereum, etc., and has complex algorithms and software.

Bitcoin is the first decentralized Digital Currency and is accepted as a worldwide payment system.

Deputy Governor of RBI, BP Kanungo, believes having its very own digital currency could benefit the efficiency of the financial economy due its blockchain or the distributed ledger technology used by bitcoin currently. The distributed ledger or blockchain is competent to record transactions between two parties efficiently and also verifiably and permanently.

He also said that not only India, but other countries too are uneasy about such cryptocurrencies because there is no investor safety as any government or central bank do not regulate them.

An Inter-departmental group constituted by RBI will submit a report by June 2018

The RBI is now exploring the feasibility of introducing its own flat digital currency.

In fact, even the Income Tax (I-T) Department had issued notices to 500,000 bitcoin and other investors. An inter-departmental group formed by RBI is studying the possibility of introducing a 'central bank digital currency.' As the central institution of the country and given the increasing use of digital payments besides the cost of printing paper money, RBI feels a strong need to discover its potential, of course keeping the physical or real currency in circulation.

Real currency in the form of paper and coins could never be eliminated in India because according to the statistics from Oxfam India, who work at the grassroots level, India is home to the largest population of illiterate adults in the world, which is nearly 287 million.

More than 800 million of India’s 1.25 billion people live in the countryside. One-quarter of rural India’s population is below the official poverty line – 216 million people.

Though digital currency may facilitate transactions for the literate and technologically aware population, real physical currency is literally the hard-earned money for the poor!