"Cryptocurrencies are a clear danger. Anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name,” the Reserve Bank of India (RBI) Governor Shaktikanta Das wrote in the foreword to RBI’s Financial Stability Report published biannually. “Technological advances powered by cryptography and distributed ledger technology (DLT) have led to the rise of new digital assets such as crypto assets and stablecoins, which generally have no underlying assets and are primarily used for speculative investments,” read the report. Why it matters: Several countries across the world are looking to regualte crypto and studying the risks posed by the assets. India is currently in the middle of drafting its crypto law for which deliberations are underway by the Ministry of Finance. The central bank is a key regulatory body whose inputs are valued by the ministry and it remains one of the staunchest opponents of cryptocurrencies in India. Limited, but growing risk from crypto: The report stated that the risks from crypto assets to financial stability appear to be “limited” as the overall size was small (0.4 per cent of global financial assets) and their interconnectedness with the traditional financial system was restricted. The central bank did warn that the risks were likely to grow because crypto assets and the attendant ecosystem were evolving. It added that the assets had “highly volatile prices”. The report argued that these assets were designed to bypass the financial system and all its controls such as Anti-Money Laundering (AML)/Combating…
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