The Reserve Bank of India (RBI) has banned regulated banks and its account holders from dealing in cryptocurrencies.
The growing bubble around bitcoin and other virtual currencies has unnerved a number of central banks in recent months but the RBI's blanket ban is the furthest measure so far taken by a major regulator.
In a statement on its website, the RBI said that banks or other entities regulated by RBI "shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies". Any bank currently in a trading relationship using cryptocurrencies wil be given three months to exit those relationships.
According to the RBI, the ban follows three public warnings on the dangers of virutal currency dealings amid concerns around consumer protection, market integrity and money laundering.
The RBI's deputy governor BP Kanungo did maintain that the central bank remains committed to exploring the potential of blockchain technology as a means of increasing both financial system efficiency and inclusion.
He also floated the idea of a central bank-issued flat digital currency as a workable alternative to private digital tokens and one that would also help to reduce the cost of printing notes.
The deputy governor said that an RBI inter-departmental committee has been convened to explore the feasibility of such a project and it will submit its findings by the end of June.