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RBI says crypto forms an unstable ecosystem

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The Reserve Bank of India has released its Financial Stability Report, in which it says that crypto needs the same regulation applicable to traditional finance.

No change on crypto from the RBI

Noises coming out of the Reserve Bank of India (RBI) have not changed in tone at all as regards all things crypto. The latest salvo to be fired at crypto came in the form of the bank’s Financial Stability Report.

It does seem rather odd, given the incoming recession, which was undoubtedly caused by central banks printing far too much currency. This in turn sent inflation spiralling up across the world, impacting on the ordinary citizen by reducing their purchasing power by another huge amount.

Therefore, for the leading bank in India to spend so much time and effort on maligning such a tiny and still fairly inconsequential asset as crypto might appear to be a case of bringing in a cannon to kill a fly.

However, the RBI is not alone in its endeavours. Central banks from across the world also seem eager to join in the crypto-bashing, given that crypto is in the midst of a particularly harsh bear market, and various centralised exchanges have collapsed, they are having quite a field day.

Despite the entire crypto market cap amounting to less than $800 billion, the RBI said in its Financial Stability Report:

“Although the crypto assets market remains volatile, there have not yet been any spillovers onto the stability of the formal financial system. The accumulated experience, however, suggests that they form an unstable ecosystem and there is growing evidence that they remain highly concentrated and interconnected,” 

3 options to deal with crypto

The RBI stated in the report that in its view there were 3 options that might be applied to crypto. The first option, and the only one with any vestige of credibility, is to regulate crypto the same as any traditional finance company.

Crypto is a completely new asset class that has brought incredible innovation to finance. Should it be allowed to continue with fair and well thought out regulation that protects investors while encouraging more innovation, then there wouldn’t be many who would argue with it.

Option number two is to completely ban it given (in the bank’s view) that it has “negligible” real-life use cases. However, the bank does acknowledge that other countries might choose not to go along with this given their differing regulatory approaches and their laws on individual rights.

Option number three was to just allow crypto to collapse and to let it become “systemically irrelevant”. For all that, crypto undeniably has use cases and investors will be keeping an eye on it as fiat currencies slip further in value and begin to lose trust across wider populations.

With this in mind, it could be expected that central banks and regulatory agencies across the world might seek to combine their approach to crypto in an effort to crush it enough that their central bank digital currencies (CBDCs) can be implemented.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice. 

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