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Reserve Bank of India calls for a ban on private cryptocurrencies

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The Reserve Bank of India (RBI) has warned of the immediate risks of private cryptocurrencies. The bank noted that private cryptocurrencies threatened consumer protection and enabled money laundering and terrorism financing.

The bank declared its negative stance on these digital assets in the recent financial stability report.

Private cryptocurrencies carry many risks

The RBI opined that private cryptocurrencies carried a wide range of long-term risks in the report. It noted that “they are also prone to frauds and extreme price volatility, given their highly speculative nature.”

The Indian financial market regulator also noted increased global attention on cryptocurrencies. It mentioned that the rise in the adoption of cryptocurrencies had attracted regulatory bodies and governments globally.

The RBI further referred to a recent report from the Financial Action Task Force (FATF) that mentioned the growth of decentralized exchanges (DEXs), private wallets and anonymity-enhanced cryptocurrencies (AECs). The bank notes that the growth of these products could harm the country’s economy.

The recent statement from the RBI is contrary to what the former finance minister of India had started a month ago. The former minister had assured investors that private cryptocurrencies would not be banned, but the recent remarks from the RBI could prove otherwise.

The RBI is not crypto-friendly

In early December, the RBI advocated for a blanket ban on cryptocurrencies. The Central Board of Directors at the bank noted that digital assets posed a threat to the country’s financial stability.

Despite the harsh stance by the country’s regulators, the crypto framework in India remains in a grey area. The Prime Minister, Narendra Modi, noted that it was working on a cryptocurrency bill that will allow the use of cryptocurrencies as an asset class, not as a means of payment.

India is also among the countries working towards developing a central bank digital currency (CBDC). The launch of the Digital Rupee could place India at par with the other countries that are also launching CBDCs.

Earlier this year, China banned cryptocurrencies, which caused a crash across the market. While India could also impose a similar ban as per the recommendations of the RBI, it could be too late, given that investors in the country have poured billions of dollars into the sector.

In 2018, the RBI had imposed a ban on cryptocurrencies. However, the ban was overturned by the country’s Supreme Court.

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