by September 1, 2013 0 comments

Volatility in the foreign currency exchange rates is hurting Indian customers indirectly if not directly as it hurts importers, and the after-effects are here to stay for the near future. While the RBI takes steps to arrest the free fall of the Rupee, it is learnt to have been watching over the rise of digital (virtual) currencies and trying to understand these, which are becoming increasingly popular in India too, with their userbase in the tens of thousands.

Peer-to-peer Internet currencies, such as BitCoin and LiteCoin enable instant payments to anyone in the world. These have freely downloadable software clients for multiple operating systems that assist in generating virtual `coins´ in return for carrying out complex calculations. These currencies are often tradable for real goods and services (including the US dollar) with their exchanges and service providers growing in number. Slowly but surely, several websites have also started accepting such `crypto-currencies’ as a valid mode of payment. However, their legal status as a tender remains questionable as per the applicable laws. These technologies are largely open source and make use of cryptography to `mine´ currency.

There have been widespread incidences in the past (which continue to happen) of such mining having been exploited resulting in money laundering and other such financial crimes.

[ Read about malware that affects BitCoin mining, as per a security vendor´s findings(opens in a new tab/window): https://www.pcquest.com/pcquest/news/186889/bitcoin-malware-limited-skype-bitcoin-mining-uncovers-cyberoam-threat-research-labs ]

Given the absence of any publicised decision by the RBI on the validity/legal status in India of such currencies, it remains to be seen as to how far will Indians continue being involved in this ecosystem unless a regulatory framework for the same is established.

 

The latest issue of the Financial Stability Report released by the RBI does make a note of this phenomenon. Chapter III of the said report, titled `Financial Sector Regulation and Infrastructure´, touches upon virtual currencies. In the report´s own words:

Globally, the use of online and mobile technologies is driving the proliferation of virtual banks, virtual currencies and provision of banking and payment services by unlicensed entities. While leveraging on technology has resulted in many benefits, especially, in extending the reach of the financial services, these developments pose challenges in the form of regulatory, legal and operational risks.

The RBI is learnt to have taken a wait-and-watch approach to first fully understand the ins-and-outs of how this system of currencies work online before trying to regulate it in India.

Do you think that if regulated with a well-defined framework, such virtual currencies can help the Indian Rupee? Have you yourself enrolled in such P2P networks? Share your opinion/experience in the comments box below now!

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