India’s central bank is exploring the creation of a digital currency even as it escalates a crackdown on existing instruments such as bitcoin.
The Reserve Bank of India has set up a panel to study the desirability and feasibility of introducing a virtual currency, and the group will submit its report by the end of June, the RBI said in a statement on Thursday. However, it also said it is banning banks and other regulated entities from providing services to users, holders and traders of cryptocurrencies.
“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 RBI said. “Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.”
India doesn’t consider cryptocurrencies as legal tender and is opposed to their use given that they can be a channel for money laundering and terrorist financing. The Bank for International Settlements last month said digital currencies are a revolutionary tool that central banks should consider, but they remain far too risky to be used as legal tender any time soon.
The central bank also ordered payment service providers to store data on servers in India, and gave them six months to comply. Detailed instructions will be issued within a week, the RBI said.