The Reserve Bank of India has published its latest annual report which contains a section devoted to cryptocurrency. The bank outlined the threats posed by cryptocurrency and highlighted the need to observe and monitor development in space. It also predicts that some trading may change from exchanges to P2P mode.
The Reserve Bank of India on Wednesday issued its 268-page annual report for 2017-2018, while emphasising that the cryptocurrency ecosystem may have an impact on the existing settlement and payment system which could consecutively effect the transmission of fiscal policy.
“Though cryptocurrency may not currently pose systemic risks, its increasing popularity leading to price bubbles raises serious concern for consumer and investor protection, and market integrity.” The RBI stated.
The report also goes on to discuss that the reserve bank and government are keeping a close eye on cryptocurrency. It referred to the mandate it published in April, forbidding all commercial institutions from offering services to any business firms dealing with cryptocurrencies.
After the RBI ban, crypto traders in the country have come up with loop holes to continue offering fiat money withdrawal and deposit services to their clients. One such solution that is gaining popularity is through peer-to-peer trading.
The RBI further added, “Developments on this front need to be monitored as some trading may shift from exchanges to peer-peer mode, which may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and offshore locations require close watch.”
The Reserve Bank of India stated that cryptocurrencies are prone to hacking and functional risk because these are stored in digital wallets. Additionally, the RBI sees a high possibility for misuse, specifically for illegal activities and tax avoidance. The bank further discusses that cryptocurrencies lacks a well-established framework to for resolving client issues over payments that take place on a P2P network without any central authority that regulates the payments.
“The absence of information on counterparties in such peer-to-peer anonymous/pseudonymous systems could subject users to unintentional breaches of anti-money laundering laws (AML) as well as laws for combating the financing of terrorism (CFT).” The Reserve Bank further added.
The report also discusses that many central banks around the world are embracing central bank digital currencies. As previously reported by Coinedict, the Reserve Bank of India has formed an inter-departmental group to research and offer guidance on the feasibility of introducing a central bank digital currency.