Reserve Bank of India regulations on Bitcoin in India

Laws about Bitcoin are in a gray area today across the world. I studied documents from the Reserve Bank of India’s public repository surrounding Virtual currencies and prepaid solutions. I happened to study two documents about Prepaid Payment and Foreign Exchange Management Rules, 2000.

 

Why research Prepaid Payment rules?

A person may come across the need to purchase them through Fiat Currencies (INR, USD, GBP, etc). Purchasing any e-currency and loading to an eWallet is regulated by the RBI. Although Bitcoin is in no way related to this, I wanted to see how close I could get to any laws that could present a roadblock.

 

Is Bitcoin Regulated in India?

The RBI regulation on Prepaid Payment Instruments in India defines a lot of areas. After understanding the documents of RBI’s guidelines and Rules, this is where I could find the only roadblock based on regulation.

 

3. Eligibility

3.2 Only banks which have been permitted to provide Mobile Banking Transactions by the Reserve Bank of India shall be permitted to launch mobile based prepaid payment instruments (mobile wallets & mobile accounts).”

 

In order to enter into the market; fiat is needed to purchase Bitcoin. Fiat will fade away as more people adopt Bitcoin. Until that frictionless free flow between consumers and merchants is made possible, this is a problem area for Bitcoins entry into India.

 

It can be overcome through:

  • Donations and sponsorships. There are enough Smartphones to cause this market to explode in any sponsor’s favor.
  • Sell Services and goods for Bitcoin. Programming Skills, etc.
  • Mining is too expensive at this stage, unless you have the latest and best equipment. Electricity is not expensive in India.

If we keep fiat out of the system, then Bitcoin is unregulated in India.

 

I spent some time on the Foreign Exchange Management Act, but it is entirely out of the scope of Bitcoin. As it is a decentralized currency, it can be considered to be a domestic currency since it is being mined in India. This leaves it out of the scope of Foreign Exchange.

 

Even if, IP’s can be tracked when Bitcoin is used for Foreign Exchange, they can be easily anonymized through the Tor Wallet. Since it is a true P2P (Peer to Peer/ Person to Person) currency, it is impossible to regulate in a population using Bitcoin as a token of value to trade. The logistics to monitor a mass population is not feasable.

 

Please do read the Draft Guidelines for issuance and operation of Prepaid Payment Instruments in India and Foreign Exchange Management (Current Account Transactions) Rules, 2000. They will help to understand more about the Banking Regulations in India and help solve some problems. India’s closed currency banking system is rival to none. The banks have maintained a lot of public faith in urban areas and have reached a lot of people in this 1.5B population landscape.

 

India has an unbanked population of 41% according to RBI statistics

(Source: URL Below).

 

I would like to reach out to the world of regulators and lawmakers to release a statement on Bitcoin. Can the Reserve Bank of India issue a statement on Bitcoin?

 

Please forward this till someone takes notice and moves Bitcoin along in a positive path.

 

Sources:

Draft Guidelines for issuance and operation of Prepaid Payment Instruments in India

Foreign Exchange Management (Current Account Transactions) Rules, 2000.

Tor Wallet

Ignoring the Unbanked: Reserve Bank of India’s Mobile Payments Guidelines – A study by Radix Consultancy

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23 comments on “Reserve Bank of India regulations on Bitcoin in India

  1. Pingback: Basics of Bitcoin » FinHow

  2. hi..
    I am from delhi, india
    i was considering setting up a token solution wherein a token bought throught fiat currency could be used to do transactions…very much like the recharge coupons work for mibile phones..Do the RBI rules apply to this case??

  3. BTC is of the people, by the people, and for the people. The central banks and governments of the world have all proven themselves to be corrupt criminals, good-for-nothing parasites who do not represent the people anymore than blood-sucking parasites represent their hosts. Who cares what RBI thinks? It is time to wholesale fire all government parasites and replace them all with a true P2P socialist democracy! BTC has proven that a single good open-source P2P program can replace vast massive dinosaur institutions of the central banks (and their wars, environmental destruction, etc). Now we should replace all aspects of centralised government and return the power to the people, now that the technology has finally made it possible!

    Vive la Revolution!

  4. Am in being a net savy and CSE ug when a came across BTC few months back the and following its foreign exchange market. Can’t we convert BTC into INR via other foreign exchange services like E-currency service etc??

  5. Are there services that convert BTC to foreign currency say USD and then covert it back to INR. Yea, i agree there is a transaction cost, but would this be under the regulations.

  6. Hi, Thanks for your article which solves my few doubts but i would like to know how much amount that can be allowed to exchange without permission under Law. Finally does these FEMA, SEBI, RBI …. will only appicable for common man??

  7. Hi Benson

    I have a mining setup, now there is a scenario for me to get my mined money into my bank account.
    I.E. I trade at BTC-e and withdraw my $ to my indian PAYPAL account. which automatically withdraws to my bank accout.
    Paypal withdraws auto to indian banks, you already know that.
    Is this scenario Possibile to work with ?

    • This is possible, but would need some custom scripts to be written. The custom script will do the exchange and transfer funds appropriately. Do check on forex regulations though as this may come into play when moving BTC out of India.

  8. Hi i want to buy bitcoin but i am Indian . Am i allowed to buy bitcoin ? i dont want to convert them into INR. I just want to use them to buy online things AM i allowed to do that ?

  9. An Indian is allowed to operate one foreign account (provided you declare it), open an account in a foreign country, convert btc into that account (in that country’s currency) & transfer to India whenever and whatever amount you need. Provided you pay taxes on all income there shouldnt be a problem, correct?

  10. I blog often and I truly thank you for your information.

    This great article has really peaked my interest.
    I’m going to bookmark your blog and keep checking for new details about once a week.
    I subscribed to your Feed as well.

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