RBI Caution: Don't Let Bitcoin Rally, Fictitious Offers Carry You Away
Even as Bitcoin touches new highs fuelling investor interest, the Reserve Bank of India has warned the public of the risks of virtual currencies (VCs). The RBI has also expressed concerns over customers being allured by fictitious offers in forms of lottery, business deals and credit cards, and has warned consumers against falling prey to any such schemes.
The Bitcoin business
It is worth mentioning here that the price of a single Bitcoin, which is not regulated by any monetary authority, had skyrocketed to up to $11,000 last week in a rally which puzzled watchers.
"There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value," the central bank had said in a December 24, 2013 note.
Bitcoins or other VCs do not yet have a wide acceptance as tender for settling trade transactions. They are 'minted' using algorithms which are based on blockchain technologies, according to experts.
Those backing the instrument say no one has been able to crack the code which mints the 'currency', and stress the fact that such instruments are the future of finance in an inter-connected world.
The Reserve Bank has been repeatedly saying since late 2013 that they possess "potential financial, operational, legal, customer protection and security related risks". The apex bank had said that it was studying the sector but emphatically clarified that it is uncomfortable with "non-fiat" cryptocurrencies.
"As regards non-fiat cryptocurrencies, I think we are not comfortable," its executive director Sudarshan Sen said an industry summit in September this year.
"The creation, trading or usage of VCs, including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities," the RBI said in its first comments in September 2013.
Such currencies, stored in electronic wallets, were prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack, it had said. The RBI had also said that the exchange platforms on which the Bitcoins were traded were set up in various jurisdictions whose legal status was also unclear.
In September this year, media reports had said the finance ministry was mulling launching a cryptocurrency called "Lakshmi" and had set up a committee for the same.
With Inputs from Housing News