India’s central bank, the Reserve Bank of India (RBI), sees cryptocurrencies as “a clear danger.” However, the financial stability risks posed by crypto assets currently appear to be “limited.”
RBI on Crypto’s Danger and Financial Stability Risks
Thursday’s 25th edition of the Reserve Bank of India’s Financial Stability Report (FSR), was released by the RBI. Shaktikanta das, RBI Governor wrote:
It is a real danger that cryptocurrencies can be used. Cryptocurrencies are a clear danger. They can be a source of value, but it is only speculation.
The RBI chief further opined: “While technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against.”
The Indian central bank’s report explores financial stability risks posed by crypto assets, citing various studies, including the work by the Financial Stability Board (FSB). It states that:
Cryptoassets are currently considered to have low risk of financial instability because their overall size (0.4 percent) is very small.
In addition, it notes that crypto’s “interconnectedness with the traditional financial system is restricted.”
The report includes:
However, the associated risks will increase as both these assets and their ecosystem are changing.
Stablecoins are also discussed in the report, as well as central bank digital currencies. The RBI noted: “The risks from stablecoins that claim to maintain a stable value against existing fiat currencies require close monitoring, in particular.”
Christine Lagarde of the European Central Bank (ECB), made the same comments about crypto and financial stability in the RBI statement. “Crypto assets and decentralized finance (defi) have the potential to pose real risks to financial stability,” she said in June. “This would be particularly the case if the rapid growth of crypto-asset markets and services continue … and the interconnectedness with both the traditional financial sector and the broader economy is intensified.”
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