In a press release this week, the Royal Bank of India (RBI) echoed recent comments from European regulators about the risks associated with virtual currencies and also said it is “presently examining the issues associated with the usage, holding and trading or [virtual currencies] under the extant legal and regulatory framework of the country,” suggesting that the press release is not the last word on this issue from the RBI.

The warnings from RBI focused on the risks to customers who buy, sell, or trade in virtual currencies:

  • Security risks, such as “losses arising out of hacking, loss of password, [and] compromise or access credentials, malware attack, etc.” and the potential “loss of the e-wallet”;
  • The absence of a central regulatory authority to provide recourse for customer problems or disputes;
  • The speculation and “[h]uge volatility” in the value of virtual currencies;
  • The potential for legal risk arising out of the use of an unregulated exchange platform; and
  • The use of virtual currencies for illicit and illegal activities.

These warnings add to the chorus of regulatory agencies around the world that have recently issued warnings about the perceived risks associated with virtual currencies.  In at least one sense, however, India’s action is more worrisome to Bitcoin’s proponents.  Whereas response to the various European regulators’ warnings was relative muted, India’s statement prompted some major Indian Bitcoin exchanges to immediately suspend operation at least temporarily.  (Some Indian exchanges continue to operate).  This may be a signal that further regulatory developments in India will not be positive for Bitcoin.  If India follows the path of China and effectively halts the commercial use of Bitcoin, Bitcoin would be 0 for 2 at least for the moment in the world’s two most populous countries.