India’s central bank, the Reserve Bank of India (RBI), warns about the various risks private cryptocurrencies pose to the country’s monetary stability on its biannual Financial Stability Report (FSR) released on December 29, 2021. The document includes a section discussing the dangers of all cryptocurrencies not offered by the RBI, including Etheruem, Litecoin and Bitcoin.
‘Private cryptocurrencies pose immediate risks to customer protection and anti-money laundering (AML)/combating the financing of terrorism (CFT). They are also prone to frauds and extreme price volatility, given their highly speculative nature’, RBI stressed.
In the 144-page report, the apex bank enumerated long-term challenges such as capital flow management, impact on monetary policy, macroeconomic stability and substitution of currency, among other things.
The report has also cited the findings of the Financial Action Task Force (FATF) stating that the crypto sphere has given birth to currencies allowing anonymous transactions and De-Fi platforms. They warned that these novel schemes reduce financial transparency and further obfuscate financial flows.
According to the bank, ‘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’.
This is not the first time RBI has expressed its disdain for the mainstream adoption of cryptocurrencies. In December 2021, during the 592nd meeting of the central board of directors, RBI Governor Shaktikanta Das openly stated his opposing views against digital assets since they are not regulated by central banks, calling for a full ban of cryptocurrencies.
‘Cryptocurrencies are a serious concern to RBI from a macroeconomic and financial stability standpoint. The government is actively looking at the issue and will decide on it. But as the central banker, we have serious concerns about it and we have flagged it many times’, Das announced during an event.
However, other members of the board argued that the developments in fintech merit careful discussion and deliberation.
Meanwhile, the national government of India is reportedly collaborating with the Securities and Exchange Board of India (SEBI) to regulate cryptocurrencies. The bill, however, is still in progress and is expected to be introduced during the budget session.