RBI views crypto as a clear danger

The Reserve Bank of India (RBI) has long been a vocal critic of cryptocurrencies and has even sought to ban the trading of Bitcoin (BTC), Ether (ETH) and other digital currencies at one point. The monetary authority reiterated its skepticism once more in its latest financial stability report.

On Thurdsay, RBI published the 25th issue of its Financial Stability Report. Writing on the report’s foreword, RBI Governor Shaktikanta Das described crypto as a clear danger and mere speculation.

“We must be mindful of the emerging risks on the horizon,” Shaktikanta Das wrote. “Cryptocurrencies are a clear danger. Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.”

While the RBI Governor acknowledged the importance of new technology for the financial sector, she also expressed concern on the risks that might crop up. “While technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against,” Das added. “As the financial system gets increasingly digitalised, cyber risks are growing and need special attention.”

The Financial Stability Board identified several vulnerabilities associated with unbacked crypto such as Bitcoin (BTC), stable coins, DeFi, and crypto exchanges. These include “the linkages between crypto asset markets and the regulated financial system; liquidity mismatch, credit and operational risks, with the potential spillover to short term funding markets;increased use of leverage in investment strategies; concentration risk of trading platforms; and opacity and lack of regulatory oversight of the sector.”

The RBI report said decentralized cryptos “are designed to bypass the financial system and all its controls,” according to Cointelegraph. These include Know Your Customer (KYC), Anti-Money Laundering, and Combatting Financial Terrorism mechanisms. This could undermine sovereign control over the monetary supply and introduce instability over time.

Despite its harsh assessment of cryptocurrencies, digital asset risks wereat the bottom of the RBI’s risk agenda. Crypto asset risk tied with sovereign rating downgrades and just slightly higher than political uncertainty and the threat of terrorism.

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