RBI releases financial stability report mentioning DeFi, US efforts to regulate crypto sector

The Reserve Bank of India (RBI) has released its latest Financial Stability Report (FSR) that outlines the significant developments that have taken place in the domestic and international banking and fintech sector in recent times. The area of ​​decentralized finance (DeFi) was briefly mentioned in the RBI report in which the central bank discussed the direction of global bodies on developments in the sector. The RBI also touched upon the US’s efforts to regulate the crypto sector.

RBI’s FSR report mentions DeFi technology

In his FSR reportThe RBI recognized that digital financial systems have been adopted across the world, leading to the creation of new business models and new financial distribution channels.

The advanced technologies of distributed ledger (blockchain)Cloud computing, artificial intelligence (AI) and machine learning (ML), according to the RBI, have shown relevant implications for financial systems across the world.

Let’s talk in particular about ChallengeThe report states that global regulatory bodies such as the Financial Action Task Force and the International Organization of Securities Commissions (IOSCO) are continuously reviewing developments around DeFi. These global financial whistleblowers fear that rapid growth in DeFi could have effects on the broader asset market and, subsequently, global financial stability.

US Efforts to Regulate Cryptocurrency Industry

The central bank notes that the US government is attempting 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 allow the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to oversee digital assets, venues, and entities. According to the RBI, the FIT21 Act is also expected to ensure market certainty, while granting some form of recognition to digital assets in the country.

The RBI report also addresses the US SEC’s decision to approve trading of exchange-traded products (ETPs) for certain cryptocurrencies like Bitcoin and Ether ETFs.

On the other hand, the Indian central bank has expressed concern over the growing number of cyber crimes connected to the crypto industry internationally.

“Ransomware crypto payments, business email compromises, and the cost of data breaches have reached a new high in 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. In addition, cyberattacks 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 remain unchanged

The RBI has repeatedly stated that it prefers crypto to be banned in the country. Since cryptocurrencies allow for anonymity of 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 eliminates the need for intermediaries like banks to process financial transactions, which threatens the monopoly of central banks over their respective financial systems.

Even so, the DeFi sector was mentioned once in the RBI report, and industry members in the country are already optimistic about the future of the fintech sector in India.

“The RBI today released its semi-annual Financial Stability Report (FSR). It contains very little information about the crypto-asset sector, which could be both positive or negative, depending on how you look at it! There is no specific negative commentary on financial stability risks related to 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, comments on the development.

The latest report appears to reaffirm the RBI’s position reluctance to accept cryptocurrencies as legitimate payment methods in the country in the near future.

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