The Reserve Bank of India announced today that it will begin studying the effects of issuing its own cryptocurrency, setting a deadline for June 2018.
“While many central banks are still engaged in the debate, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency,” said the bank’s deputy governor B. P. Kanungo.
The RBI is undergoing this project in an attempt to make its services more efficient and improve the country’s financial system.
If it actually manages to create a digital Rupee, it could theoretically make the process of verifying transactions and executing them much simpler.
At the same time it made this announcement, the RBI also pushed local banks and other financial institutions to stop providing their services to people and businesses that are involved in cryptocurrency trading.
This could slow down exchange operations in the country significantly, potentially bringing the cryptocurrency market to a crawl.
“[The] Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the RBI shall not deal with or provide services to any individual or business entities dealing with or selling [virtual currencies],” a statement by the bank read.
This is bad news for India’s cryptocurrency market, which already saw a decrease in searches overall for coins in the country, according to research by Jana.
While the statement by the RBI doesn’t constitute an outright ban on exchanges or cryptocurrencies themselves, it would now be more difficult for operators to maintain liquidity in Rupees, perhaps relegating them to relying on foreign banks for their activities.