This may be because the adoption of crypto-assets in various use cases and a clear assessment of their impact on the economy so far seems to have missed policy makers. The same survey found that the majority of central banks have identified the use of crypto-assets primarily as “use by niche groups” and “insignificant use or no use” in jurisdictions related to both domestic and cross-border payments.
In early February 2022, the Financial Stability Board (FSB) acknowledged significant data gaps that made it difficult to identify and quantify an assessment of the impact of crypto-assets on financial stability.
RBI said it hopes e₹ will provide the benefits of cryptocurrencies while protecting financial consumers and avoiding the “social and economic impact” of cryptocurrencies. If it’s too good to be true, it usually is, and he seems to fit the RBI’s e₹ prediction as a panacea for the many risks associated with crypto assets. stablecoin.
Several motivations are driving crypto adoption, but this does not overlap with e₹ alone.Customers who feel a pinch of depreciation Rupee More likely (under current foreign exchange rates) towards asset-backed stablecoins linked to global currency reserves such as the US dollar.
This poses a direct dollarization risk, as identified by the G7 Working Group on Stablecoins. It is unlikely that e₹ would provide a compelling reason to deter the dollarization of this example by converting the Indian Rupee into a USD-denominated stablecoin.
Stablecoins may also provide a faster, cheaper, and easier channel for cross-border remittances that largely circumvent the formal financial system (and thus foreign exchange laws). Until India becomes a member of the many cross-border remittance projects that are being built around his CBDC, e₹ may not address it directly until the projects come to fruition.
Individual investors in private cryptoassets (not stablecoins) typically do so because of the potential advantages arising from the intense volatility and arbitrage opportunities between various crypto exchanges. of relatively high returns associated with de-fi staking (roughly similar to fixed deposits) or de-fi lending (similar to P2P lending) to incentivize retail investors in private crypto assets Promises cannot be matched by such interest-free products. As.
For the RBI and governments to address the risks crypto-assets pose to the economy, a legal framework is needed to govern the various aspects of crypto-assets. The regulation of crypto assets in India is still poorly coordinated and inadequate. This is a directive from CERT-In (India’s Computer Emergency Response Team) requiring virtual asset service providers to follow KYC standards set out by the Reserve Bank of India and the Stock Exchange. Indian Commission (For Cyber Security Interests).
In parallel, state enforcement agencies have taken action under the Foreign Exchange Control Act of 1999 and the Anti-Money Laundering Act of 2002, citing ambiguity in the nature and extent of the application of these laws to cryptocurrency exchanges. has also filed a lawsuit against the cryptocurrency exchange.
While it is unlikely that a single law can govern all these aspects related to crypto-assets and stablecoins, it is likely that various regulators and agencies will be empowered to act, identify delegated laws, and exercise their powers. Without a framework to give, we need rules and regulations by the professional bodies necessary to implement the provisions of the law. You can’t actually move forward. Underpinning all of this is the underlying problem. The major question of whether to ban or regulate both cryptoassets and stablecoins is categorically undecided. There’s more to this than just a fair set of challenges.
The RBI’s duty under the Reserve Bank of India Act, 1934 is to ensure the stability of India’s currency and to operate the monetary system favorably. This mandate may result in a more rigorous view of stablecoins and cryptoassets, which may not always align with the views of the Treasury Department, and possibly have broader macroeconomic objectives. There is. In this potential difference between the roles of regulators and states, the nature of the consequences remains unclear.
However, this also suggests that the RBI and the government, subject to sufficient regulatory interventions, such as registration measures, should consider stablecoins, possibly currencies, as opposed to cryptocurrencies, which could potentially be regulated. could mean reaching a more conservative position against more direct threats to / Target potential points of failure in the market such as exchange licensing, business continuity requirements, KYC, token listing rules, disclosure requirements, circuit breakers during volatility, governance norms, etc.
This approach is not new, and the FSB in particular has provided the impetus to solve this conundrum. Given that these assets are likely to be adopted for use cases such as payments or stores of value.
On the same day, the FSB published a separate submission to the G20 on Approaches to Regulation, Supervision and Adequate Supervision of Cryptocurrency Activities and Markets.
The FSB leaves room for regulators to determine their regulatory approach on their own (including pursuing conservative approaches such as bans or bans), but regulators and governments can decide based on proportionality and regulation coordination. It sets out a broad set of high-level principles intended to help build regulation that is built on
The FSB’s principles are intended to guide governments to enact appropriate laws.
Empower regulators with appropriate powers and tools, assist them in designing comprehensive governance frameworks, and direct intermediaries to implement effective risk management frameworks. In some ways the message is clear. If governments decide to embark on a regulatory approach (rather than a ban), the FSB guidelines show that there is a path to regulation that will sufficiently mitigate the harms associated with stablecoins and cryptoassets.
However, it remains to be seen if the RBI views this message through the same lens.
Arjun Goswami, Public Policy Officer. and Ganesh Gopalakrishnan, Senior Associate, Cyril Amarchand Mangaldas