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Virtual nature of Bitcoin raises questions about how its value would be governed: Raghuram Rajan

Raghuram Rajan

Raghuram Rajan

Reserve Bank of India (RBI) governor Raghuram Rajan expressed concerns over the regulation of digital currency Bitcoin which has suddenly become popular, mentioning that the virtual nature of the currency raises questions about how its value would be governed, according to a Livemint report.

While declining to share details of RBI’s future course of action on Bitcoin, Rajan said investors and users should exercise caution before using Bitcoin as a consistent means of exchange. Earlier, RBI had put out a cautionary advisory explaining some of the concerns that investors and users of Bitcoin could face. “As a currency, I do worry a little bit when the underlying fluctuates tremendously,” said Rajan, speaking at the Nasscom India Leadership Forum.

Stressing on the need for credibility, he mentioned, “There are questions that need to be asked, one of them being who will maintain value? Can we have confidence in unseen, unknown centres who maintain the value of the currency, or an algorithm that will maintain the value of the currency?”

He, however, didn’t rule out the need for Bitcoins entirely. “I don’t want to say that there is no future for these virtual currencies, I think it’s a process of evolution, but for now all we have done is express the kinds of concerns we have about it, without determining in any which way what we intend to do,” he said. Rajan also called for greater collaboration between the country’s $118 billion information technology (IT) industry and the financial services sector to develop technologies that would address the issue of financial inclusion for the masses in India.

At least 40 per cent of the population still does not have access to financial services. Last year, RBI had set up a committee headed by Nachiket Mor to promote financial inclusion, which involves the spread of banking and financial services to the unbanked segments of the country.

“Technology, with its capacity to reduce transaction costs, is key to enabling the large-growing local transactions that is at the heart of financial inclusion. Our banks have improved tremendously, but they need the benefit of technology to reach out much further,” said Rajan.

(Edited by Joby Puthuparampil Johnson)