The Reserve Bank of India (RBI) has published its latest Financial Stability Report (FSR), outlining recent significant developments in the national and international banking and fintech sector. The field of decentralised finance (DeFi) finds a brief mention in the RBI report, with the central bank discussing the focus of global bodies on developments in this sector. The RBI has also discussed efforts made by the US to regulate the crypto sector.
Mention of DeFi technology in RBI's FSR report
in its FSR ReportRBI acknowledged that digital financial systems have been adopted across the world, creating new business models and financial delivery channels.
Advanced technologies of the Distributed Ledger (Blockchain)According to the RBI, technology, cloud computing, artificial intelligence (AI) and machine learning (ML) have shown relevant implications for financial systems across the world.
In particular, if we talk about DeFiThe report states that global regulatory bodies such as the Financial Action Task Force and the International Organization of Securities Commissions (IOSCO) are constantly investigating developments around DeFi. These global financial whistleblowers are concerned that the rapid growth of DeFi may have an impact on the broader asset market and subsequently on global financial stability.
US Attempts to Regulate the Crypto Sector
The central bank said the US government is striving to create a regulatory framework for digital assets in the form of the Financial Innovation and Technology Act for the 21st Century (FIT21) law. The FIT21 Act is expected to give the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) the authority to monitor digital assets, venues, and entities. According to the RBI, the FIT21 Act is also expected to ensure market certainty while providing some form of recognition to digital assets in the country.
The RBI report also mentioned the US SEC's decision to approve trading of exchange traded products (ETPs) for select cryptocurrencies such as bitcoin and ether ETFs.
On the other hand, the Central Bank of India has expressed concern over the increasing numbers. Cyber crimes Internationally connected to the crypto sector.
The report said, “The cost of ransomware crypto payments, business email compromise, and data breaches reached a new high during 2023. The financial sector has reported more than 20,000 cyber intrusions and digital attacks, resulting in losses of US$20 billion over the past 20 years. Furthermore, cyberattacks have been found to increase during geopolitical tensions such as political and economic uncertainty, leading to devastating consequences.”
RBI’s stance on crypto in India appears to be unchanged
The RBI has repeatedly stated that it wants crypto to be banned in the country. Since cryptocurrencies allow anonymity in transactions, the central bank is concerned that crypto assets could be used for illegal activities such as terrorism financing and money laundering. The crypto sector also gives people more control over their funds and eliminates the need for intermediaries such as banks to process financial transactions, which threatens the monopoly of central banks over their respective financial systems.
Nevertheless, the DeFi sector was mentioned once in the RBI report, and industry members in the country are already hopeful about the future of the fintech sector in India.
“The RBI today released its half-yearly Financial Stability Report (FSR). There is very little in it for the crypto asset sector, which could be both good or bad, depending on how one looks at it! There are no specific negative comments on financial stability risks from digital assets, which again could mean something, or nothing, depending on how one looks at it,” Said R Venkatesh, Head of Public Policy at CoinSwitch, commented on the development.
The latest report seems to confirm this belief of RBI. Reluctance Cryptocurrencies will be accepted as a valid mode of payment in the country in the near future.
