Some cryptocurrency trading may shift to peer-to-peer mode, says Reserve Bank of India

The Reserve Bank of India (RBI) this week released its Annual Report 2017-18 which includes a section on “Cryptocurrency: Evolving Challenges.”

In April, the central bank issued circular prohibiting banks from extending banking services to cryptocurrency exchanges. September is going to be crucial month as the Supreme Court of India is going to rule on the matter. In the same month, regulators are also expected to be ready with the final draft of the cryptocurrency regulation laws.

In its annual report, the RBI has highlighted the risks posed by cryptocurrencies in areas of consumer and investor protection, operational risks, and use in illegal activities, including tax avoidance, among others.

“The cryptocurrency eco-system may affect the existing payment and settlement system which could, in turn, influence the transmission of monetary policy,” it said.

The central bank also noted the position other countries have taken on cryptocurrency regulation, including the United State, Japan, and China.

While discussing the aftermath of its April circular, the RBI said:

“Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT and taxation issues, require close watch.”

The central bank reiterated its optimism for the underlying distributed ledger technology saying that the technology’s adoption “in the domain of payment, clearing and settlement solutions holds the promise of significant economic benefits in future.”

The RBI has also formed an inter-departmental group to explore the possibility of introducing a central bank digital currency (CBDC). Recent reports also suggest that it has set up a new unit to accelerate its efforts in the area of cutting-edge technologies such as blockchain and artificial intelligence (AI).