The Reserve Bank of India (RBI) has had reservations about cryptocurrency from the very beginning and it once more expressed its concerns about the expanding crypto ecosystem.
As a matter of fact, it went as far as suggesting that some of the aspects of the ecosystem be completely banned.
Financial stability report
On December 29th, the Indian central bank published its financial stability report in which it said that it would take advantage of the rotating presidency of the G20 group for this purpose.
It involves the largest economies of the world and it would use this chance to talk about the development of a global regulatory framework aimed at crypto assets.
Generally, the report had a rather upbeat tone in regard to the current conditions of India, but it did talk about strong global headwinds.
Nonetheless, the report stated that the domestic financial system and the Indian economy had shown resilience.
But, when it came to the discussion of cryptocurrencies, the tone of the report changed rather drastically.
The report highlighted a growing list of crises that have occurred in the crypto space in 2022 alone.
It talked about the volatility of crypto, its unsuitability as a hedge against inflation, and the high correlation it appears to have with equities, along with the concerns of governance.
The report said that a constant theme that could be seen in the crypto ecosystem is leverage, which has resulted in massive losses and led to rapid failures.
Regardless of that, the popularity of crypto in the ecosystem only rises because of rising prices, especially where the younger population is concerned.
The report said that they needed to come up with a common strategy for dealing with crypto assets in order to reduce financial stability risks in the future and to protect investors and consumers.
According to the report, there are three options to explore where crypto regulation is concerned. The first approach is to go with the principle of the same risk and regulatory outcome.
The second option highlighted in the report was to ban crypto assets, given that they have negligible use cases in real life.
However, this option would be a complicated one due to the difference in individual rights and legal systems all over the world.
The third option was to take no regulatory action and to essentially allow crypto to self-destruct, but it was declared as extremely risky to adopt in terms of mainstream finance.
The report said that under the G20 presidency of India, one of its notable priorities would be to develop a framework for regulating crypto globally.
This includes the possibility of banning stablecoins, unbacked crypto assets as well as decentralized finance (DeFi).
Since the start of the G20 presidency, India has prioritized the topic of crypto regulation. This is because the government has been trying to develop a regulatory framework for it in the country for some time.
But, they have not managed to achieve any success in this regard.