RBI Identifies Crypto As A Systemic Risk


The Reserve Bank of India has added cryptocurrencies as a possible risk in its latest Systemic Risk Survey, concluded in May. The risk survey, which has been detailed in the central bank’s financial stability report released on Thursday, places crypto assets under the medium risk category.

“Cryptocurrencies are a clear danger. Anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name,” RBI Governor Shaktikanta Das detailed in his foreword to the report.

Aside from cryptocurrencies, the RBI also identified geopolitical risks and monetary tightening by advances economies as systemic risks in the latest survey. Both these are classified under the high-risk category.

A risk assessment by the sub-committee of the Financial Stability and Development Council, which is part of the report, highlighted that the developments in the crypto space and the broader role of technology in financial services are receiving increased attention. The FSDC-SC is a committee which includes representation from various regulatory bodies in India and the government.

The market value for crypto assets grew tenfold from early 2020 to late 2021 when it peaked at almost $3.0 trillion before recording a sharp decline below $1 trillion in June 2022, the report said.

Crypto assets have gained in popularity in emerging market economies in recent years, especially in countries with volatile exchange rates, according ot the financial stability report.

“For residents in these countries, cryptoassets pegged to reserve currencies such as U.S. Dollar-linked stablecoins are a convenient tool to avoid capital controls and KYC/AML requirements,” the report said.

Although the degree of “cryptoisation” thus far appears limited, its growth circumvents restrictions on exchange rates and capital controls and limits the effectiveness of domestic monetary policy transmission, posing a threat to monetary sovereignty.

“Problems with these assets such as price crashes. could spill over to payment systems and adversely affect real economic activity,” the report said.


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