Private cryptocurrencies pose immediate risks to customer protection and are prone to frauds and extreme price volatility, given their highly speculative nature, the Reserve Bank of India (RBI) said in its financial stability report released on Wednesday.
The latest report noted that the proliferation of private cryptocurrencies across the globe has sensitised regulators and governments to the associated risks. “Private cryptocurrencies pose immediate risks to customer protection and anti-money laundering (AML)/combating the financing of terrorism (CFT). They are also prone to frauds and to extreme price volatility, given their highly speculative nature,” it said.
Longer-term concerns relate to capital flow management, financial and macro-economic stability, monetary policy transmission and currency substitution, it said. According to the Financial Action Task Force (FATF), the virtual asset ecosystem has seen the rise of Anonymity-Enhanced Cryptocurrencies (AECs), mixers and tumblers, decentralised platforms and exchanges, privacy wallets, and other types of products and services that enable or allow for reduced transparency and increased obfuscation of financial flows.
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 report said. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was included in the Lok Sabha Bulletin-Part II for introduction in the Winter Session of Parliament that concluded on December 22.
According to the bulletin, the bill, which could not be introduced, sought to create a facilitative framework for the creation of the official digital currency to be issued by the RBI. It also sought to prohibit all private cryptocurrencies in India. However, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
The aggregate market capitalisation of the top 100 cryptocurrencies has reached USD 2.8 trillion. In the EMEs that are subject to capital controls, the report said, free accessibility of crypto assets to residents can undermine their capital regulation framework.