Not so long ago in India, its central bank published its latest annual report which includes a section dedicated to cryptocurrency. The Reserve Bank of India outlines the risks posed by crypto and emphasizes that need to monitor crypto development in anticipation that some trading mat shift from exchanges to peer-to-peer (P2P) mode.
This past Wednesday, the country’s central bank, The Reserve Bank of India released its 268-page annual report for 2017/2018. The central bank noted while asserting that “the cryptocurrency eco-system may affect the existing payment and settlement system which could, in turn, influence the transmission of monetary policy.” In addition to that, “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.”
Also, the annual report confirms that the government and the central bank “are keeping a close watch on cryptocurrency.” The RBI stated once more referring to the circular it issued in April banning all financial institutions from providing services to “any individual or business entities dealing with or settling in virtual currencies.”
“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 use of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations… require close watch.”
Since the RBI ban, which took place back July, most crypto exchanges have come up with ideas to still continue to provide Indian rupee deposits and withdrawal services for the clients. One of these solutions is that growing in popularity is through exchange-escrowed P2P trading.
However, the RBI claims that cryptocurrencies are “prone to hacking and operational risks” because they are stored in electronic wallets. Also, the central bank notices “a high possibility of its usage for illicit activities, including tax avoidance.” The RBI also stressed that crypto lacks an “established framework for recourse to customer problems/ dispute resolution as payments by cryptocurrencies takes place on a peer-to-peer basis without an authorized central agency which regulates such payments.”
The RBI detailed that “The absence of information on counterparties in such 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).”
The report concludes by stating that a number of central banks around the world are exploring central bank digital currencies. “In India, an inter-departmental group has been constituted by the Reserve Bank to study and provide guidance on the desirability and feasibility to introduce a central bank digital currency.”