RBI: Virtual Currencies are Risk Prone

With what can be termed as a clear caution for the investors gearing up to invest in the Virtual Currencies (VCs) including Bitcoins, the Reserve Bank of India completely brushed aside any possibility of them being adopted in the monetary framework of the country.

With the latest caveat, the Central Bank has warned the users, traders and holders of the currency to maintain utmost caution while trading in the unconventional currency.

As per the RBI, the VCs carry various kinds of security related risks which can expose a trader to a number of financial, operational and legal hazards. Furthermore, there is ever lying prospect of a trader violating existing laws against terror financing and money laundering, which are in practice in the country.

The RBI in its recently issued press release has also informed that only after taking in view the function and nature of ‘Decentralized Digital Currency’ or ‘Virtual Currency’ (VCs) comprehensively, such as Bitcoins, litecoins, bbqcoins, and others, has it arrived at the given conclusion.

Virtual Currency (mainly Bitcoin) has recently created an obsession worldwide among the investors based on the unusual ease of its operation and functionality. Nevertheless, Bitcoins lack official recognition from the monetary authority or Central Bank in any country of the world. The currency is highly driven by the speculators and even experienced a shot up to $ 1,124 in November from just $ 13 in January earlier this month. For the reason, the currency carries significant levels of volatility and is highly speculative in nature; China banned its financial institutions from trading in it.

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, and therefore, can cause theft of the digital currency contained in 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.

Large 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.

The price of Bitcoins has plummeted to Rs 42,737 from a high of Rs 74,628 in the last month of the ongoing year.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of our organisation.