The Reserve Bank of India (RBI), the central bank of India, has issued a warning about the multiple risks that cryptocurrencies pose to the country’s financial stability. “They are also prone to fraud and extreme price fluctuations,” the top bank claimed, emphasizing that “cryptocurrencies pose direct risks to customer protection and anti-money laundering (AML)/combating terrorist financing (CFT).”

RBI’s evaluation of cryptocurrencies

The Reserve Bank of India (RBI), the central bank of India, released its biennial Financial Stability Report (FSR) last week. This 144-page document includes a section on “private cryptocurrency risks.” The term “private” refers to all cryptocurrencies not issued by the Reserve Bank of India, including Bitcoin and Ethereum.

The central bank wrote:

The surge in private cryptocurrencies around the world has made regulators and governments more sensitive to related risks.

“Private cryptocurrency poses a direct risk to customer protection and anti-money laundering (AML)/counter-terrorism financing (CFT),” the Reserve Bank of India emphasized.

In addition, the central bank pointed out: “Given their highly speculative nature, they are also prone to fraud and extreme price fluctuations. Long-term concerns are related to capital flow management, financial and macroeconomic stability, monetary policy transmission, and currency substitution.”

The report also cited the findings of the Financial Action Task Force (FATF), which stated that “the virtual asset ecosystem has witnessed anonymous enhanced cryptocurrency (AEC), mixers and tumblers, decentralized platforms and exchanges, privacy Wallets and other types of products and services that can or allow to reduce transparency and increase capital flow confusion.” The Reserve Bank of India emphasized:

New types of illegal financing continue to emerge, including the increasing use of virtual-to-virtual tiered schemes, which attempt to further promote chaotic transactions in a relatively easy, cheap, and anonymous way.

Noting that the market value of the top 100 cryptocurrencies has reached 2.8 trillion U.S. dollars, the Reserve Bank of India warned that “in emerging market economies [emerging market economies] Due to capital controls, residents’ free access to encrypted assets may undermine their capital regulatory framework. “

The Central Bank of India pointed out that the report also involved decentralized finance (defi), which was “recently marked by the Bank for International Settlements (BIS) as a risk of concentration of power”, adding:

The rapid growth of decentralized finance (defi) is mainly geared towards speculation, investment and arbitrage of encrypted assets, rather than the real economy.

The Reserve Bank of India added that the restrictions on anti-money laundering and Know Your Customer (KYC) terms, “along with transaction anonymity, expose defi to illegal activities and market manipulation, and create financial stability issues.”

The Bank of India has repeatedly stated that it has significant and Serious concern About cryptocurrency.At the recent central board meeting, the Reserve Bank of India called on the government Completely banned For cryptocurrencies, it is stated that some bans do not work.

At the same time, the Indian government postponed the introduction of the cryptocurrency bill. A bill was included in the parliament’s winter meeting, but it was not adopted.According to reports, the government is now Rework bill.

What do you think of the Central Bank of India’s warning on cryptocurrencies? Please let us know in the comments section below.

Kevin Helms

As a student of Austrian economics, Kevin discovered Bitcoin in 2011 and has been an evangelist ever since. His interests lie in Bitcoin security, open source systems, network effects, and the intersection of economics and cryptography.