 "Crypto assets can negatively impact financial stability, says RBI report")
Widespread use of crypto assets, including stablecoins, can have a negative impact on the macroeconomic and financial stability of a country, the Reserve Bank of India (RBI) said on Monday.
In its Financial Stability Report (FSR), the banking regulator highlighted that excessive use of crypto assets can reduce effectiveness of monetary policy, worsen fiscal risks, circumvent capital flow management measures, divert resources available for financing the real economy and threaten global financial stability.
“Even though the size of crypto asset markets remains small, their continued growth and increasing linkages with the traditional financial system could pose systemic risks. Stablecoins also present potential run risks,” the RBI said in its report, citing the International Monetary Fund - Financial Stability Board (IMF-FSB) synthesis paper on policies for crypto assets.
This comes as prices of virtual digital assets (VDAs), such as bitcoins, have reached new highs this month on account of US President-elect Donald Trump’s re-election.
Earlier this month, the price of bitcoin breached the $100,000 mark, reaching an all-time high of $108,316 about two weeks later. The surge in the price of bitcoin has more than doubled in 2024 alone.
This has led to an increased market capitalisation of stablecoins that enable the lending, borrowing and trading of other digital assets.
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Stablecoins are a type of cryptocurrency which is designed to maintain a stable value by being pegged to a reserve asset like a fiat currency, including the US dollar.
Distributed Ledger Technology (DLT)-based tokenisation can expose several financial stability vulnerabilities, including liquidity and maturity mismatches, leverage, asset price and quality, interconnectedness, and operational fragilities, the RBI said.
Tokenisation refers to the process of creating digital representations called tokens. These represent real-world assets such as bank deposits, money market funds’ shares, repos, and government securities. They are created using DLT.
“Given that it is still in its infancy, financial stability concerns of tokenisation of assets are currently limited. Nonetheless, it has the potential to deepen the interconnectedness between the traditional financial system and the decentralised financial (DeFi) system,” the RBI highlighted.
In India, homegrown crypto majors such as CoinDCX and CoinSwitch have a base of 16 million and 20 million users respectively.