The Reserve Bank of India (RBI), India’s central bank, sees cryptocurrencies as a “clear danger.” However, the financial stability risks posed by cryptoassets appear to be “limited” for now.
RBI on the dangers of cryptocurrencies and financial stability risks
The Reserve Bank of India (RBI) released its 25th Financial Stability Report (FSR) on Thursday. RBI Governor Shaktikanta Das wrote:
Cryptocurrencies are a clear danger. Anything that gains value based on fiction has no basis whatsoever, just guesswork under a complex name.
The head of the RBI further argued that: “While technology supports the influence of the financial sector and its advantages must be fully exploited, its potential to undermine financial stability must be guarded against.”
The report by the Central Bank of India explores the financial stability risks posed by crypto assets, citing various studies, including the work of the Financial Stability Board (FSB). The report states:
Due to the overall small size (0.4% of global financial assets), the risks to financial stability from cryptoassets appear to be limited for now.
Additionally, it states that cryptocurrencies have “limited connections to the traditional financial system.”
Nonetheless, the report added:
However, as these assets and the ecosystems that support their growth continue to develop, the associated risks may increase.
The report also discusses stablecoins and central bank digital currencies (CBDCs). “The risks of stablecoins that claim to maintain a stable value relative to existing fiat currencies need to be closely monitored in particular,” the RBI noted.
The RBI’s statement on financial stability and cryptocurrencies echoes comments made by European Central Bank (ECB) President Christine Lagarde on the subject. “Crypto assets and decentralized finance (defi) have the potential to pose real risks to financial stability,” she said in June. “This is especially true if cryptoasset markets and services continue to grow rapidly…and if interconnectedness with the traditional financial sector and the wider economy is strengthened.”
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