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Private digital currencies, commonly known as cryptocurrency, are currently unregulated in India.

The Reserve Bank of India (RBI) yet again urged retail investors to be more cautious while investing in cryptocurrencies, and noted that the crypto ecosystem lacks accountability and stability and is marked by regulatory ambiguity.

RBI, in its monthly bulletin released Tuesday, asserted that their findings suggest that the interest in cryptocurrencies is driven by speculative motive rather than a means of payment for real economic transactions.

The RBI findings are in accordance with a survey by UK FCA that majority of investors (38 per cent) investing in cryptoassets taking it as a ‘gamble to make or lose money’.

“Some cryptos may be backed by underlying; however, if the underlying itself is another unstable digital asset with no transparency and central bank back up, the crypto system is prone to crisis without safeguards,” the RBI bulletin noted.

The bulletin quoted the RBI governor Shaktikanta Das, wherein he had once said ‘the term cryptocurrency, private cryptocurrency is a fashionable way of describing what is otherwise 100 per cent speculative activity.’

The recent collapse of FTX and Binance exposed the limitations of the country specific rules/bans and grave risks they entail.

“As DeFi (Decentralised Finance) continues to evolve and mature, and its interaction with the traditional financial system grows, its utility against risks demands further analysis,” RBI said.

In early May, governor Shaktikanta Das had said that Central Bank Digital Currency (CBDC) or digital currency, can drive financial inclusion and provide a much safer alternative to potentially dangerous private digital currencies.

Private digital currencies, commonly known as cryptocurrency, are currently unregulated in India.

The Indian government does not register crypto exchanges and it maintains crypto assets, which, by definition, are borderless and require “international collaboration.”

India backs CBDC, with its unique technology, and believes it has transformative potential. Das asserts three key features of CBDCs– anonymity, ease of usage, and finality of settlements.

The digital currency was launched in India on a pilot basis, both in the wholesale and retail categories, in November-December 2022.

Among key learnings so far from the CBDC pilot, Das had said it has similar denominations to that of hard currency, which makes it easier for users to relate to CBDCs as a digital form of cash. It also offers a similar degree of anonymity to that of hard cash.

  • Published On May 23, 2024 at 12:29 PM IST

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