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.
It was written by the central bank:
Regulators and governments have become more aware of the risks associated with private cryptocurrency across the world.
“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:
The use of virtual to-virtual layering is a growing method to conceal illicit funding. This allows transactions to be muddled in a relatively easy, inexpensive, and anonymous way.
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 decentralized financial industry’s rapid expansion is more geared towards investing in and arbitraging in crypto assets than 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.”
Indian central banks have repeatedly stated that they are concerned about crypto currency. The RBI exhorted the government at its most recent meeting to ban all cryptocurrency.
In the meantime, India has delayed issuing a cryptocurrency law. Although a bill had been listed for consideration in the winter session, it wasn’t adopted. According to reports, the government has begun to rework the bill.
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