Mumbai: Reserve Bank Deputy Governor R Gandhi today 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. "But, I can see that there are immense ways in which fintech and banks and financial institutions can collaborate with one another to usher in best value for financial services customers," Gandhi said.
Talking about the peer-to-peer lending, Gandhi said RBI has come out with a discussion paper on this kind of business model and it will soon release final norms. "We have received comments and soon we will be able to finalise it (norms)," the Deputy Governor said.
In April last year, RBI released a consultation paper on peer-to-peer lending seeking comments from all interested parties. Peer-to-peer lending is a form of crowd-funding which can be defined as the use of an online platform that matches lenders with borrowers in order to provide unsecured loans.
The borrower can either be an individual or a business requiring a loan. The lender can also be a natural or a legal person. At present, there is no clear regulatory framework in India governing the functioning of the peer-to-peer lending platforms....