RBI hints at banning unbacked crypto assets, stablecoins and DeFi

The Reserve Bank of India (RBI) has stressed that under India's G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins and DeFi (Decentralised Finance).

The central bank in its latest Financial Stability Report (FSB) said that crypto assets are highly volatile.

"The collapse and bankruptcy of the crypto exchange FTX and subsequent sell-off in the crypto assets market have highlighted the inherent vulnerabilities in the crypto ecosystem," according to the report.

The report's recommendations seek to promote international consistency on regulatory and supervisory approaches, which are grounded in the principle of "same activity, same risk, same regulation" approach.

"The framework proposes that authorities should have appropriate powers, tools and resources to regulate, supervise, and oversee crypto assets activities and markets, both domestically and internationally, proportionate to the financial stability risk they pose," the RBI report mentioned.

Furthermore, the RBI report said that “contrary to claims that they are an alternative source of value due to inflation hedging benefits, crypto assets value has fallen even as inflation rose."

"To address potential future financial stability risks and to protect consumers and investors, it is important to arrive at a common approach to crypto assets," said the Central Bank.

Only last week, the RBI Governor Shaktikanta Das said that the next financial crisis will come from crypto collapse if private digital coins are allowed to grow.

The RBI has also last month kick-started a pilot project to launch its own digital rupee in the wholesale segment and subsequently plans to roll out another one in the retail segment within a month, with an aim to enhance financial inclusion and move towards a less cash economy with its central bank digital currency (CBDC).

Meanwhile, the government's bill that seeks to prohibit all private cryptocurrencies in India is yet to be tabled in the Parliament.