The Reserve Bank of India (RBI) has released its latest Financial Stability Report (FSR) which summarizes important events that have recently taken place in the domestic and international banking and fintech sector. The dominance of decentralized finance (DeFi) got a brief mention in the RBI report in which the central bank discussed the global bodies' focus on the evolution of the sector. The RBI has also spoken about US efforts to regulate the crypto sector.
RBI's FSR report mentions DeFi technology
In its FSR report, the RBI acknowledged that digital financial systems have been adopted across the globe, leading to the creation of new business models and financial distribution channels.
The advanced technologies of distributed ledger (blockchain), cloud computing, artificial intelligence (AI) and machine learning (ML), according to the RBI, have proven to have relevant implications for financial systems around the world.
Speaking in particular about DeFi, the report said that global regulatory bodies such as the Financial Action Task Force and the International Organization of Securities Commissions (IOSCO) are constantly scrutinizing developments around DeFi. These global financial insiders are concerned that a rapid growth of DeFi could have effects on the broader asset market and subsequently on global financial stability.
US efforts to regulate the crypto sector
The central bank notes that the US government is trying to create a regulatory framework for digital assets, in the form of the Financial Innovation and Technology for the 21st Century Act (FIT21). The FIT21 Act is expected to empower the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to oversee digital assets, sites and entities. According to the RBI, the FIT Act21 is also expected to ensure market certainty, while also granting some form of recognition to the country's digital assets.
The RBI report also refers to the US SEC's decision to approve trading in exchange-traded products (ETPs) for selected cryptocurrencies such as Bitcoin and Ether ETFs.
On the other hand, the central bank of India has expressed its concern about the increase in the number of cybercrimes related to the cryptographic sector at the international level.
“Ransomware crypto payments, business email compromises and cost of data breaches rose to a new high during 2023. The financial sector has reported more than 20,000 cyber intrusions and digital attacks, leading to losses worth $20 billion over the past 20 years. In addition, cyberattacks are seen to increase during periods of political and economic uncertainty, such as geopolitical tensions, with disruptive consequences,” the report notes.
RBI's stance on crypto in India appears to be unchanged
The RBI has repeatedly said it prefers crypto to be banned in the country. Because cryptocurrencies allow for anonymity in transactions, the central bank is concerned that crypto assets could be exploited for illicit activities such as terrorist financing and money laundering. The crypto sector also gives people more control over their funds and removes the need for intermediaries such as banks to process financial transactions, which threatens the monopoly of central banks in their respective financial systems.
Still, 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 released its Financial Stability Semi-Annual Report (FSR) today. There is very little for the crypto asset sector, which could be good or bad depending on how you look at it! There is no specific negative commentary on the financial stability risks of digital assets, which could again mean something, or nothing, depending on how you look at it,” said R Venkatesh, head of public policy at CoinSwitch, commenting on the development.
The latest report seems to reaffirm the RBI's unwillingness to accept cryptocurrencies as legitimate modes of payment in the country in the near future.
