FSR report of RBI says private cryptocurrencies impose risks against anti-money laundering (AML) and become a challenge in combating the financing of terrorism (CFT).
In the Financial Stability Report (FSR), the Reserve Bank of India (RBI) mentioned that the proliferation of private cryptocurrencies across the globe is a growing concern for the government as they pose immediate risks to customer protection, thereby making the economy vulnerable.
RBI report further stated that private cryptocurrencies have risks against anti-money laundering (AML) and combating the financing of terrorism (CFT).
Earlier, in the 592nd central board of directors meeting which was held in Lucknow on December 16, the Reserve Bank of India (RBI) has conveyed to the board that it favours a complete ban on cryptocurrencies, according to various media reports.
Private Cryptocurrencies are also prone to frauds and to extreme price volatility, given their highly speculative nature, mentioned the report. Longer-term impacts include concerns related to capital flow management, financial and macro-economic stability, monetary policy transmission and currency substitution.
"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, decentralised platforms and exchanges, privacy wallets, and other types of products and services that enable or allow for reduced transparency and increased obfuscation of financial flows," FSR report pointed.
RBI said the aggregate market capitalisation of the top 100 cryptocurrencies has reached $2.8 trillion, adding that in the emerging market economies that are subjected to capital controls, free accessibility of crypto assets to residents can undermine their capital regulation framework.
In November, Reserve Bank of India Governor Shaktikanta Das said the cryptocurrency market is a matter of serious concern to the central bank from the perspective of macroeconomic and financial stability. As per the central bank chief, the cryptocurrency market is an unregulated territory and therefore, acquiring complete information is difficult.
The RBI report has also cautioned repeatedly on the rapid growth of decentralised finance that is geared predominantly towards speculation and investing and arbitrage in crypto assets, rather than towards the real economy.
"The limited application of anti-money laundering and know-your-customer (AML/KYC) provisions, together with transaction anonymity, exposes Defi to illegal activities and market manipulation, and poses financial stability concerns," the report added.