On Wednesday, a 268-page annual report for 2017-18 was published by the Indian central bank: The Reserve Bank of India.
The central bank asserted that “the cryptocurrency eco-system may affect the existing payment and settlement system which could, in turn, influence the transmission of monetary policy.” The bank wrote:
“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.”
According to the annual report, the government and the central bank “are keeping a close watch on cryptocurrency.”
Also, based on the circular that was released in April, about all financial institutions were banned from providing services to “any individual or business entities dealing with or settling in virtual currencies,” the bank echoed: “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.”
Crypto exchanges in India have since the ban, develop solutions to continue providing Indian rupee deposit and withdrawal services to their customers. One of the solutions is through exchange-escrowed P2P treading.
According to the bank, cryptocurrencies are “prone to hacking and operational risk” because they are stored in electronic wallets. In addition, the central bank sees “a high possibility of its usage for illicit activities, including tax avoidance.”
RBI emphasized on the fact 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 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).”
It is also stated in the report that some central banks worldwide are exploring central bank digital currencies. The report reads: “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.”