NEW DELHI: While the cloud of uncertainty continues to hover over the legal status cryptocurrencies, seems like financial institutions have already started to take precautions. Citi Bank, in an email to its customers, has said that credit and debit cards cannot be used to purchase cryptocurrencies.
The email notification says “Given concerns, both globally and locally including from the Reserve Bank of India, cautioning members of the public regarding the potential economic, financial, operational, legal, customer protection and security related risks associated in dealing with bitcoins, cryptocurrencies and virtual currencies, Citi India has decided to not permit usage of its credit and debit cards towards purchase or trading of such bitcoins, cryptocurrencies and virtual currencies.”
It has been reported that RBI has warned banks about cryptocurrencies in January, telling them to step up scrutiny of financial transactions by companies and exchanges involved in the trade of bitcoins and similar digital tender. However, the apex bank is yet to declare such transactions illegal. The central bank’s has asked banks to understand how these currencies work before dealing with such companies.
In a press release issued earlier on in the month, RBI said that it has not given any licence / authorisation to any entity / company to operate such schemes or deal with bitcoin or any virtual currency. “As such, any user, holder, investor, trader, etc. dealing with virtual currencies will be doing so at their own risk,” it added.
RBI has been periodically issuing notifications cautioning various stakeholders regarding the risks of virtual currencies. Finance Minister Arun Jaitley in his Budget 2018 speech clearly stated that ‘government does not consider crypto-currencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system’, but he did not declare cryptocurrencies illegal either. Therefore, the status quo on cryptocurerencies being neither legal nor illegal still continues.
Globally, banks and other financial institutions are seen taking precautionary measures since cryptocurrencies are highly volatile and customers who purchase these virtual currencies using their credit cards may not be able to clear their dues if they are hit hard by a price crash.
It has been reported that in the US, Citigroup and others like Bank of America and JP Morgan Chase have blocked cryptocurrency purchases via credit cards as they are are not willing to take the credit risk associated with it.
Further, in UK, Lloyds Banking Group has also banned credit card customers from buying bitcoin amid fears it could be left in debt as the cryptocurrency’s value deflates.
It looks like Citi Bank in India is following its American parent in banning cryptocurrency purchases using credit and debit cards. We will have to wait and watch to see if other Indian banks follow suit.
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