Bubble money

The concern expressed by the Reserve  Bank of India (RBI) over the use of bitcoins as currency is right and has had an immediate impact. Some of those who have dealt in bitcoins have suspended their operations but this may not mean the end of their use.

The RBI has cautioned individuals and traders over the potential financial, operational, legal, and surety-related risks involved in exposure to bitcoins. But it is unable to regulate it as it has admittedly not fully understood it and has only a sense that there is something wrong in the business. This is not enough to regulate and control it, especially when it is growing in popularity all over the world. In India half a million parties have been using it.

Bitcoins are a virtual currency which is not issued by a central  bank or regulated by any agency. It is a decentralised private enterprise and the money exists only in the form of an electronic code. The currency was created in 2009. Its availability is limited as it is not continuously produced like currencies. There are other virtual currencies also, like litecoin and anoncoin. But bitcoins are the most popular as a pioneering enterprise. They have served many functions of a currency, being a fast and efficient medium of exchange and a store of value. The value of bitcoins has increased about 60 times in the last one year and so they are also considered to be a good investment. They hide the identity of those who deal in the currency as the buyer and seller are not known. Bitcoin exchanges are active all over the world.  

It is recognised and accepted as currency in some countries. Germany considers it as a unit of account and Ben Bernanke, former US Fed Reserve chairman, thinks it holds long term promise. Many shops and establishments, including the Walmart, accept payments in bitcoins. But there are serious risks involved in their use as they may be used in activities like gambling, drug trade, money laundering  and for many illegal purposes. There is also the possibility of theft, with no claim for legal action to recover lost money. China, where it had become very popular, has banned it. The RBI has done well to issue a warning against its use but it is itself not equipped to stop its circulation. As of now, it is a bubble in a grey area. 

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