The Reserve Bank of India (RBI) has emphasized that one of India’s G20 presidential goals is to create a framework for international regulation, including the potential for banning unbacked crypto assets, stablecoins, and Defi (Decentralized Finance).
According to the central bank’s most recent Financial Stability Report (FSB), cryptocurrency assets are highly volatile.
“The collapse and bankruptcy of the crypto exchange FTX and subsequent sell-off in the crypto assets market have highlighted the inherent vulnerabilities in the crypto ecosystem,” according to the report.
The biggest cryptocurrency exchange, Binance, just made withdrawals of stablecoins from its platform illegal.
The failure of TerraUSD/Luna, an algorithmic stablecoin, a run on Celsius, a cryptocurrency lender, and the bankruptcy of Three Arrows Capital, a cryptocurrency hedge fund, came before the collapse of FTX.
The report’s proposals, based on the tenet of “same activity, same risk, same regulation,” aim to enhance global uniformity in regulatory and supervisory procedures.
“The framework proposes that authorities should have appropriate powers, tools and resources to regulate, supervise, and oversee crypto assets activities and markets, both domestically and internationally, proportionate to the financial stability risk they pose,” the RBI report mentioned.
Additionally, there are significant correlations between crypto assets and equities.
“Furthermore, contrary to claims that they are an alternative source of value due to inflation hedging benefits, crypto assets value has fallen even as inflation rose,” said the RBI report.
RBI governor skeptical over crypto assets
Although the market for crypto assets is still erratic, there haven’t been any adverse effects on the stability of the conventional financial system.
“To address potential future financial stability risks and to protect consumers and investors, it is important to arrive at a common approach to crypto assets,” said the Central Bank.
According to RBI Governor Shaktikanta Das, if private digital coins are permitted to develop, the next financial crisis will result from the collapse of the cryptocurrency market.
Das emphasized that cryptocurrencies have no “underlying value” and represent significant hazards to global macroeconomic and financial stability when speaking to a group of politicians and leaders from the banking industry.
“After the last year’s development, including the latest episode surrounding FTX, I don’t think we need to say anything more,” Das said.
“Crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100 percent speculative activity,” he added.
To increase financial inclusion and shift the economy away from cash, the RBI launched a pilot project last month to introduce its digital rupee in wholesale. This month, it wants to launch a second experiment in the retail sector (CBDC).
The CBDCs can accelerate innovation in cross-border payments by enabling immediate transactions and overcoming significant difficulties related to time zone differences, exchange rate variations, and legal and regulatory constraints in various jurisdictions.
The government has yet to introduce a bill in the Parliament that will outlaw all private cryptocurrencies in India.
