Skip to main content

'Important to arrive at a common international approach to crypto': RBI

By

 The Crypto market remains volatile, and cryptocurrencies form "an unstable ecosystem", the Reserve Bank of India (RBI) said in its Financial Stability Report (FSR) released on Thursday. To address financial stability risks and protect investors, it is important to arrive at a "common approach to crypto assets", the report added.  "Although the crypto assets market remains volatile, there have not yet been any spillovers onto the stability of the formal financial system. The accumulated experience, however, suggests that they form an unstable ecosystem and there is growing evidence that they remain highly concentrated and interconnected," it said. The FTX turmoil, RBI said, revealed that crypto is highly volatile and exhibits "high correlations" with equities. It has also not served as a hedge against inflation. "Contrary to claims that they are an alternative source of value due to inflation hedging benefits, crypto assets value has fallen even as inflation rose," the report said. Since its peak in November 2021, Bitcoin has fallen over 70 per cent. "Leverage is a constant theme across the crypto ecosystem, making failures rapid and losses huge and sudden," it added. 'Considering various options' To prevent further fallout, the RBI said it was considering various options internationally. The first option was to apply the "same-risk-same-regulatory-outcome" principle and subject crypto to the same regulation applicable to traditional financial intermediaries and exchanges. The second option was "to prohibit crypto assets since their real-life use cases are next to negligible". However, the challenge to this approach was that different countries have different legal systems and individual rights. The third option being considered was "to let it implode and make it systemically irrelevant". The underlying instability and riskiness will ultimately prevent the sector from growing, RBI said. This, too, had several risks as crypto may become more interconnected with mainstream finance and divert financing away from traditional finance with a broader effect on the real economy, the report added.

 

'Design appropriate policy approach'

 

RBI further said that policymakers must design an appropriate policy approach to mitigate financial stability risks and promote "responsible innovation". "In this context, under India's G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins and decentralised finance (Defi)", it said. The report also recalled the Financial Stability Board's (FSB's) framework for international regulation of crypto assets which was introduced in October. FSB had proposed that authorities should have "appropriate powers, tools and resources to regulate, supervise, and oversee crypto assets activities and markets, both domestically and internationally". It also pitched for "promoting comprehensive governance and effective risk management frameworks".

 

 

-2nd January, 2022

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Healthy balance sheets augur well for economy: RBI Governor Sanjay Malhotra

By
  Large tariffs by the United States administration and elevated geopolitical risk have increased near-term global financial stability risks, and along with weather events pose downside risks to domestic growth, Reserve Bank of India(RBI) Governor Sanjay Malhotra said in the foreword to the Financial Stability Report released today.Noting that domestic growth momentum is buoyed by strong domestic drivers, sound macroeconomic fundamentals and prudent policies, Malhotra said: “External spillovers and weather-related events could pose downside risks to growth.”On the other hand, he said the outlook for inflation is benign, and there is greater confidence in the durable alignment of inflation with the Reserve Bank’s target.Commenting that the structural shifts reshaping the global economy are making policy intervention challenging, the Governor emphasised the need for central banks and financial sector regulators to remain vigilant, prudent and agile in safeguarding their economies and...
Post a Comment
Read more