3 months ago 2 min read

The Bank of India Strives for International Regulation of Digital Asset Market


In its most recent report on financial stability, the Reserve Bank of India (RBI) focused on digital currencies.

Despite the poor macroeconomic trends that put the world's financial systems in danger, the study was tinged with optimism. In spite of "severe global headwinds," the RBI study stated that "the Indian economy and local banking system remain resilient."

The RBI expressed doubt on the viability of the asset class represented by virtual currencies as well as the threat they represent to the larger financial sector. The paper listed the disasters that befell digital assets, including the demise of Terra, FTX, and a slew of well-known ventures that prohibited customer withdrawals.

The central bank of India stated that using a unified regulatory strategy is the only way to reduce the risks posed by the volatile asset class. The "same-risk-same-regulatory-outcome" idea, which would subject virtual currency service providers to the same regulations as banks, was proposed in the report.

The RBI recommends a total ban of the entire asset class, claiming that "their real-life use cases are close to insignificant," as the investigation progresses. It is unclear how the banking authority plans to implement a global blanket ban given the use of distributed ledger technology (DLT).

The RBI stated that since the sector's fundamental instability and riskiness will ultimately prevent it from expanding, "a third alternative is to let it disintegrate and render it systemically irrelevant."

The third alternative, according to the bank, posed the greatest risk to the financial industry because there is a good likelihood that virtual currencies will become very integrated with traditional finance. The RBI currently thinks that these sectors function separately because there was little impact from Terra and FTX on traditional finance.

The answer to the conundrum of virtual currency

The RBI thinks that a coordinated effort on the part of nations to create a unified rule is the best way out of the digital asset mess. The RBI refers to a staccato approach to regulation as a "recipe for failure" because it would lead to regulatory arbitrage through the creation of loopholes.

India has already seized the initiative and offered to utilize its G20 presidency to create a common strategy for asset class regulation. The future of virtual currency regulation was a topic of several lectures given to stakeholders by Finance Minister Nirmala Sitharaman, who expressed the same opinions.

The development of a framework for global regulation, including the potential for the prohibition of unbacked crypto assets, stablecoins, and DeFi, is one of the goals under India's G20 leadership in this regard, according to RBI.

Watch: The Middle East and South Asia Blockchain Panel at the BSV Global Blockchain Convention.

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