New Delhi: Reserve Bank Deputy Governor R Gandhi on Wednesday raised concerns over virtual currencies such as Bitcoin and said they pose potential financial, legal, customer protection and security-related risks.
He said such digital currencies are not created by any authority but more and more people have started accepting them. “We can see that in these types of virtual currencies there is no central bank or monetary authority. They pose potential financial, operational, legal, customer protection and security-related risks,” Gandhi said at a Fin Tech conference organised by Ficci, Indian Banks’ Association and Nasscom.
Gandhi said virtual currencies are stored in digital electronic form and are prone to losses arising out of hacking, loss of password, and malware attacks. “No established framework for recourse to customer problem, disputes and grievances is feasible with this (virtual currencies) kind of framework.” The Deputy Governor said a number of cases have been reported in which virtual currencies have been used for illicit and illegal activities.
“My arguments against virtual currencies stem from two elements — the concept of confidence and anonymity. The currency should be able to sustain these two elements forever. It will impair it’s exalted status once either of these two elements gets affected.”
He said the confidence in Bitcoin, or any other virtual currency based on blockchain, is also limited to its initial rounds and circles. “The initial round is always filled with adventurists and risk seekers. The moment masses gets in, the risk avoiders get in they will need greater confidence for its acceptance and continuance,” Gandhi said. The confidence in virtual currencies can only come if an authority endorses them, he said.
“It may remain a pipe dream that blockchain will eliminate currency by ushering in virtual currency. It is unlikely.” Gandhi maintained banking is no longer what a bank does but is also what a non-bank entity does. “Banks are no longer those entities which do banking exclusively, non-banks also do banking.” He said fintech companies are accelerating the pace of change and are shaping the financial services industry. Financial service providers like banks are recognising the potentials of the fintech.
He, however, said the disruptive innovations of the fintech cannot wholly eliminate the traditional banking or finance. Bitcoin is a cryptocurrency and a payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto and in a word it’s a online coin.