Virtual Currencies Carry Big Risk, says RBI
When the rest of the world is going gung-ho about the newly evolved phenomenon named Virtual Currencies (VCs) including Bitcoins, the Reserve Bank of India has warned the users, traders and holders of the currency to maintain some caution while trading in it.
As per the Central Bank, the VCs carry various kinds of security related risks which can expose a trader to various kinds of financial, operational and legal hazards.
RBI informed that only after taking into the view the function and nature of ‘Decentralized Digital Currency’ or ‘Virtual Currency’ (VCs), such as, Bitcoins, litecoins, bbqcoins, and others, has it come to the given conclusion.
Even China has claimed apprehensions regarding the use of VCs, mainly Bitcoins, considering their unregulated nature and potential to cause risks of diverse nature to the trader. Although, Bitcoins (in particular) have become a craze of late, the currency hasn’t found official acceptance from the monetary authority or central bank in any country of the world.
The entities involved in carrying out trade of the VCs including Bitcoins are working without any regulatory approval of authorization of any sort. As per the RBI, the risks that are involved with trading of the currency are as follows:
- VCs are stored in form of ‘digital wallets’ which are prone to hacking or malware attack, therefore, can cause permanent loss of the VCs contained by them.
- In absence of any authorized payment framework, there is no proper recourse mechanism to sort out customer problems related with charge backs/ disputes etc. The currency is only traded through a feeble peer-to-peer basis, which lacks backing of an authorized central agency.
- Great amount of losses can emanate in trade owing to huge amount of volatility associated with the virtual currency. Also, there is no underlying asset backing for VCs.
- For the reason VCs mainly Bitcoins have been reported to be used for carrying out various kinds of illegal trades, the currency easily breaches anti-money laundering and financing of terrorism laws of the country.
However, the Central Bank hasn’t completely negated the role of the VCs in the coming time, as it hinted towards examining the issues associated with its usage more comprehensively, even studying its compatibility with the existing Foreign Exchange and Payment Systems laws and regulations.