Reserve Bank of India Calls for Global Stablecoin Regulation
- The Reserve Bank of India published its Financial Stability Report on June 28, calling for global regulation of stablecoins.
- The regulator said that stablecoins might threaten a developing economy via currency substitution.
- “Cryptoization” could lead to currency mismatches “on the balance sheets of banks, firms, and households.”
- The regulator also said that stablecoin P2P transactions are hard to track, which could lead to illicit activities.
The Reserve Bank of India (RBI) has voiced its concerns regarding crypto assets a number of times in the past. In its latest Financial Stability Report published on June 28, the central bank of the world’s most populated nation stated that the development of stablecoins will disrupt the stability of developing countries. It outlines six major threats that these blockchain-based tokens present to developing economies.
In the report, the Reserve Bank of India stated the issues it sees in the development of stablecoins from the perspective of EMDE (emerging markets and developing economies). The central bank also noted that the “lack of authenticated data and inherent data gaps in the crypto ecosystem impede a proper assessment of financial stability risks.”
The regulatory body in India believes that a stablecoin could threaten an EMDE via currency substitution because the underlying assets are mostly easily convertible foreign currencies. The RBI said that the “cryptoization” of the economy that would stem from large-scale stablecoin adoption could lead to currency mismatches “on the balance sheets of banks, firms, and households.”
The central bank’s report noted that once adopted, stablecoins would present an alternative financial system in countries like India that could interfere with the authorities’ ability to mobilize money and create credit by undermining credit risk assessment.
“A globally coordinated approach is warranted to analyze risks posed to EMDEs vis-à-vis AEs [advanced economies]. […] In this context, under India’s G20 presidency, one of the priorities is to create a framework for global regulation of unbacked crypto- assets, stablecoins, and DeFi,” said the RBI.
The central bank of India noted that the presence of stablecoins will cause trouble for an EMDE regulator when it wants to set the domestic interest rate and liquidity conditions. Moreover, as per the regulatory body, peer-to-peer (P2P) transactions are very hard to track, which would make it easier for wrongdoers to implement scams or launder money.
As reported earlier by Bitnation, despite the unsupportive nature of regulators in India, crypto firms have been interested in expanding in the region. Recently, crypto exchange Gemini revealed that it is working to establish an office in Gurgaon, India, in an attempt to expand operations in Asia.
This will be the second office of the crypto exchange in Asia, along with Singapore, and will be the second-largest engineering hub after the American office. The firm is currently hiring for multiple positions as well.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
