"And if they grow beyond a critical size, they can endanger financial stability as well", he said, along with pointing out that the RBI has repeatedly cautioned users, holders and traders of virtual currencies regarding the various risks involved.
The decision came on back of the RBI's observation that only certain payment system operators and their outsourcing partners in the country store the payment system data.
But this latest announcement by RBI will make these exchanges operating in India from transacting any business on its platform since the buyers and sellers will not be able to operate their bank accounts to make or receive payments for cryptocurrency transactions.
The central bank further asked entities, which are already into such services to stop providing these kind of services within a specified time.
In the same statement on Thursday, the RBI said that it had put together a working group to study the issue of issuing its own digital currency. However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.
"We have chose to ring-fence the RBI regulated entities from the risk of dealing with entities associated with virtual currencies".
Britain's Prince Philip, 96, enters hospital for planned hip surgery
Born in Greece in 1921, Philip was a child of the House of Schleswig-Holstein-Sonderburg-Glücksburg, a Greek-Danish royal family. Officials declined to provide additional details about the surgery and said "further updates will be issued when appropriate".
An interdepartmental group has been constituted to study and provide guidance on the "desirability and feasibility" to introduce a "central bank digital currency" and will submit its report by June, the central bank said.
Entities regulated by the RBI shall not carry out transactions with individuals or businesses dealing in virtual currency, the RBI said on Thursday after issuing its bimonthly monetary policy report.
Meanwhile, RBI is exploring the creation of its own cryptocurrency.
This, however, does not mean that the RBI is going to blindly throw the baby out with the bathwater.
In order to ensure better monitoring, it is important to have unfettered supervisory access to data stored with these system providers as also with their service providers/ intermediaries/third party vendors and other entities in the payment ecosystem, it said in the notification.
Neither is India alone in unleashing a regulatory crackdown on cryptocurrencies.