India’s central bank, the Reserve Bank of India (RBI), has
warned about multiple risks cryptocurrency poses to the country’s
financial stability. “They are also prone to frauds and to extreme price
volatility,” the apex bank claims, stressing that “cryptocurrencies
pose immediate risks to customer protection and anti-money laundering
(AML) / combating the financing of terrorism (CFT).”
RBI’s Assessment of Cryptocurrency
India’s central bank, the Reserve Bank of India (RBI), published its
biannual Financial Stability Report (FSR) last week. The 144-page
document includes a section on “private cryptocurrency risks.” The term
“private” refers to all cryptocurrencies that are not issued by the RBI,
including bitcoin and ether.
The central bank wrote:
The proliferation of private cryptocurrencies across the
globe has sensitized regulators and governments to the associated risks.
“Private cryptocurrencies pose immediate risks to customer protection
and anti-money laundering (AML) / combating the financing of terrorism
(CFT),” the RBI stressed.
In addition, the central bank noted: “They are also prone to fraud
and to extreme price volatility, given their highly speculative nature.
Longer-term concerns relate to capital flow management, financial and
macroeconomic stability, monetary policy transmission, and currency
substitution.”
The report also references the finding of the Financial Action Task
Force (FATF) which states that “the virtual asset ecosystem has seen the
rise of anonymity-enhanced cryptocurrencies (AECs), mixers and
tumblers, decentralized platforms and exchanges, privacy wallets, and
other types of products and services that enable or allow for reduced
transparency and increased obfuscation of financial flows.” The RBI
emphasized:
New illicit financing typologies continue to emerge,
including the increasing use of virtual-to-virtual layering schemes that
attempt to further muddy transactions in a comparatively easy, cheap
and anonymous manner.
Noting that the market capitalization of the top 100 cryptocurrencies
has reached $2.8 trillion, the RBI warned that “In the EMEs [emerging
market economies] that are subject to capital controls, free
accessibility of crypto assets to residents can undermine their capital
regulation framework.”
The report also addresses decentralized finance (defi), which “has
recently been flagged by the Bank of International Settlements (BIS) as
carrying the danger of concentration of power,” the Indian central bank
pointed out, adding:
The rapid growth of decentralized finance (defi) is
geared predominantly towards speculation and investing and arbitrage in
crypto assets, rather than towards the real economy.
The RBI added that the limitation of AML and know-your-customer (KYC)
provisions, “together with transaction anonymity, exposes defi to
illegal activities and market manipulation and poses financial stability
concerns.”
The Indian central bank has repeatedly said it has major and serious concerns about cryptocurrency. In its recent meeting of the central board of directors, the RBI called on the government to completely ban cryptocurrency, stating that a partial ban will not work.
Meanwhile, the Indian government has delayed introducing a
cryptocurrency bill. A bill was listed to be considered in the winter
session of parliament but it was not taken up. The government is now
reportedly reworking the bill.
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