Reserve Bank of India Calls for Banning Private Cryptocurrencies

A recent financial stability report by the Reserve Bank of India (RBI) once more highlights the bank’s negative stance regarding cryptocurrencies. The Indian central bank has issued a warning about the risks associated with private cryptocurrencies. According to the central authority, these digital currencies can threaten consumer protection and also enable terrorism financing and money laundering. The bank has expressed its negative stance about these digital assets previously as well. According to the RBI, there is a wide range of long-term risks that can be associated with these private cryptocurrencies. It also noted that due to their extremely speculative nature, these cryptocurrencies are also prone to extreme price volatility and fraud.

It was further asserted by the regulator of the Indian financial market that cryptocurrencies were now garnering increasing attention globally. The RBI said that the increase in the adoption of these digital currencies has attracted the attention of governments and regulatory bodies globally. The central bank also made a reference to a recent report issued by the Financial Action Task Force (FATF), which had mentioned the growth of anonymity-enhanced cryptocurrencies (AECs), private wallets and decentralized exchanges (DEXs). As per the bank, the growth of such products could have a negative impact on the economy of the country.

This recent statement by the Indian central bank is the polar opposite of what the former Indian finance minister had said almost a month ago. Investors had been assured by the former ministers that private cryptocurrencies would not be banned, but it seems that the RBI is not on board with this decision. The RBI had actually advocated for a complete ban on cryptocurrencies in early December. In fact, the bank’s Central Board of Directors had noted that the financial stability of the country was at risk because of the risks associated with these digital assets. 

Even though the country’s regulators have taken a hard stance against the industry, the crypto framework is still in a grey area for now. Narendra Modi, the Indian Prime Minister, said that they were working on developing a crypto bill that would enable people to use cryptocurrencies as an asset class instead of as a means of payment. Apart from that, India is also one of the several countries in the world which is focusing on developing a Central Bank Digital Currency (CBDC). If India launches a Digital Rupee, it would bring it at par with some of the other countries that are also launching their own CBDC. 

Earlier this year, a complete ban on crypto was imposed by China, which had resulted in a market crash. While it is possible that a similar ban could also be imposed in India if the government was to follow the RBI, it could be considered too late to make this move because investors in the country have already poured billions of dollars into the crypto space. The RBI had already imposed a ban on crypto in the country back in 2018, but the country’s Supreme Court had overturned this ban.