The proliferation of private cryptocurrencies across the globe have sensitised regulators and governments to the associated risks, said RBI Financial Stability Report (FSR) released on Wednesday, adding that they pose immediate risks to customer protection and anti-money laundering/combating the financing of terrorism.
"They are also prone to frauds and to extreme price volatility, given their highly speculative nature. Longer-term concerns relate to capital flow management, financial and macro-economic stability, monetary policy transmission and currency substitution," the report said.
RBI's comments come at a time when the central bank has at intervals highlighted the deeper macroeconomic concerns posed by the unregulated private cryptocurrency market in India.
"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,” the FSR report noted.
Further, the aggregate market capitalisation of the top 100 cryptocurrencies has reached $2.8 trillion in the emerging market economies that are subject to capital controls, and free accessibility of crypto assets to residents can undermine their capital regulation framework, the report said.
The FSR is published bi-annually and includes contributions from all the financial sector regulators. Accordingly, it reflects the collective assessment of the Sub Committee of the Financial Stability and Development Council (FSDC-SC) on risks to financial stability.
Recently, the central bank in its 'Trend and Progress of Banking in India 2020-21' report had stated that India needs to initially go in for the basic model of central bank digital currency (CBDC) and use the payment system architecture as a backbone to make a state-of-the-art CBDC.
In its basic form, a CBDC provides a safe, robust, and convenient alternative to physical cash. Depending on various design choices, it can also assume the complex form of a financial instrument, it had said.
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