Private cryptocurrencies pose immediate risks to customer protection, & anti-money laundering (AML) & combating financing of terrorism (CFT), according to the Financial Stability Report (FSR) of the Reserve Bank of India (RBI) noted on December 29.
“They are also prone to fraud & extreme price volatility, given their highly speculative nature. Long-term concerns relate to the management of capital flows, financial & macro economic stability, the monetary policy transmission & currency subsitution. The report says.
These comments are gaining importance in the context of ongoing debates over whether or not to ban private cryptocurrencies in INDIA. The RBI has repeatedly highlighted the deepest macroeconomic concerns posed by India’s unregulated private cryptocurrency market. However, the central bank is open to the idea of introducing a central bank digital currency (CBDC).
The Indian government is drafting a national law to regulate the cryptocurrency market.
Additionally, the proliferation of private cryptocurrencies around the world has raised awareness among regulators & governments of the associated risks, according to the FSR report. The report reflects the collective assessment of the Sub-committee of Financial Stability and Development Board (FSDC) on risks to financial stability & resilience of the financial system.
“New types of illicit financing continue to emerge, including the increasing use of virtual-to-virtual overlay schemes that attempt to scramble transactions relatively easily, cheaply & anonymously,” notes the FSR report.
The aggregate market capitalization of top 100 cryptocurrencies has reached $2.8 trillion in emerging market economies that subject to capital controls, & the free accessibility of crypto assets to residents may undermine their capital regulatory framework, the report said.