For those in the cryptocurrency community, a mystery shrouds Reserve Bank of India (RBI)’s stance on cryptocurrencies. Despite a number of Right to Information (RTI) applications to the central bank and other government institutions, the community does not have a clear picture.
However, things may appear to be clearer with the RBI’s latest annual report that the central bank put out on Wednesday. Although the report starts off as bullish, the report talks about everything that is wrong with cryptocurrencies.
A line from the report reads thus, “Though cryptocurrency may not currently pose systemic risks, its increasing popularity leading to price bubbles raises serious concerns for consumer and investor protection, and market integrity. Notably, Bitcoins lost nearly US$200 billion in market capitalisation in about two months from the peak value in December 2017. As per the CoinMarketCap, the overall cryptocurrency market had
nearly touched US$800 billion in January 2018.”
The report also talks about the ways in which cryptocurrencies can change the economic system. Taking a slightly bearish stance, the report states that storing virtual currencies in digital or electronic media, could make them susceptible to “hacks” and “operational risks”. It also added, that there was no set recourse for customer problems and dispute resolutions.
Explaining the need for an authority to oversee such transactions, the report says that in peer-to-peer anonymous/pseudonymous systems could subject users to unintentional breaches of anti money laundering laws (AML) as well as laws for combating the financing of terrorism (CFT) (Committee on Payments and Market Infrastructures – CPMI, 2015).
Of course, any Indian government report on cryptocurrencies would be incomplete without comparing them to ‘Ponzi Schemes’.
The report said, “The Bank for International Settlements (BIS) has recently warned that the emergence of cryptocurrencies has become a combination of a bubble, a Ponzi scheme and an environmental disaster, and calls for policy responses (BIS, 2018). The Financial Action Task Force (FATF) has also observed that cryptoassets are being used for money laundering and terrorist financing.
When it comes to FATF, while the news is true, the body had put forward this statement a few months before the Securities and Exchange Commission (SEC) started taking a hard look at cryptocurrencies and Initial Coin Offerings. Post that, there have been a few changes in how America has come to view cryptocurrencies with a fair lens.
In conclusion, the report noted that cryptocurrencies in India need a closer look. It 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. Unlike the concerns on privately issued cryptocurrency, the adoption of DLT in the domain of payment, clearing and settlement solutions holds the promise of significant economic benefits in future.”
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