RBI said the proliferation of private cryptocurrencies around the world has made regulators and governments vulnerable to the associated risks financial stability report (FSR), stating that they pose an immediate risk to customer safety.
The RBI report said that private cryptocurrencies also pose risks to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT).
Given their highly speculative nature, they are also prone to fraud and extreme price volatility. The FSR report, released biennially, said there are long-term concerns related to capital flow management, financial and macro-economic stability, monetary policy transmission and currency replacement.
“According to the Financial Action Task Force (FATF) 12, the virtual asset ecosystem has seen the rise of anonymity-enhanced cryptocurrencies (AECs), mixers and tumblers, decentralized platforms and exchanges, privacy wallets and other types of products and services with less transparency. enable or allow for and increase financial flows,” the report added.
The total market capitalization of the top 100 cryptocurrencies has reached $2.8 trillion, the RBI said, adding that in emerging market economies that are subject to capital controls, free access to crypto assets for residents could undermine their capital regulation framework. Is.
The RBI report has also raised alarm over the rapid growth of decentralized finance which is primarily geared towards speculation and investment and arbitrage in cryptocurrency assets rather than the real economy.
“The limited application of Anti-Money Laundering and Know Your-Customer (AML/KYC) provisions, coupled with anonymity of transactions, exposes DeFi to illegal activities and market manipulation, and raises financial stability concerns. “
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