India’s central bank, the Reserve Bank of India (RBI), has warned about the many risks of cryptocurrencies to the financial stability of the country. “They are also prone to fraud and extreme price volatility,” claims the apex bank, adding, “Cryptocurrencies pose immediate risks to protect customers and combat Anti-Money Laundering (AML) / Financing of Terrorism (CFT) “
Reserve Bank of India Cryptocurrency Assessment
India’s central bank, the Reserve Bank of India (RBI) published its biennial Financial Stability Report (FSR) last week. The 144-page document includes a section on “private cryptocurrency exposure.” 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 around the world has made regulators and governments vulnerable to the associated risks.
“Private cryptocurrencies pose an immediate risk to the security of customers and to combat Anti-Money Laundering (AML)/Financing of Terrorism (CFT),” the RBI emphasized.
In addition, the central bank noted: “Given their highly speculative nature, they are also prone to fraud and extreme price volatility. Long-term concerns relate to capital flow management, financial and macroeconomic stability, monetary policy transmission and currency substitution.” Huh.
The report also referred to the Financial Action Task Force (FATF) finding that “the virtual asset ecosystem saw the rise of anonymity-enhanced cryptocurrencies (AECs), Mixer and Tumblr, decentralized platforms and exchanges, privacy wallets, and others.” The types of products and services that enable or allow reduced transparency and increased financial flows.” RBI emphasized:
New illicit financing types are emerging, including the increasing use of virtual-to-virtual layering schemes, which attempt to process sloppy transactions in a comparatively easy, cheap and anonymous way.
Noting that the market capitalization of the top 100 cryptocurrencies has reached $2.8 trillion, the RBI warned that “in EMEs [emerging market economies] For residents who are subject to capital controls, free access to crypto assets could undermine their capital regulation framework.”
The report also addressed decentralized finance (DFI), which “has recently been flagged by the Bank of International Settlements (BIS) as a threat to concentration of power,” the Indian central bank said:
The rapid growth of decentralized finance (DeFi) is primarily geared toward speculation and investment and arbitrage in cryptocurrency assets rather than the real economy.
The RBI said the limitation of AML and Know Your Customer (KYC) provisions, “along with anonymity of transactions, exposes illegal activities and market manipulation and raises financial stability concerns.”
The Indian central bank has repeatedly stated that it has big and serious concerns about cryptocurrencies. In its recent meeting of the Central Board of Directors, the RBI called on the government to ban cryptocurrencies completely, saying that a partial ban will not work.
Meanwhile, the Indian government has delayed the introduction of a cryptocurrency bill. A Bill was listed for consideration in the Winter Session of Parliament but it was not considered. The government is now reportedly reworking the bill.
What do you think about India’s central bank warning about cryptocurrencies? Let us know in the comments section below.
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