Reserve Bank of India (RBI), a long standing critic of private cryptocurrencies, has said that these pose immediate risks to customer protection, anti-money laundering and combating terrorism financing.
The central bank's financial stability report, which released on Tuesday, noted that private cryptocurrencies are "prone to frauds and to extreme price volatility, given their highly speculative nature. Longer-term concerns relate to capital flow management, financial and macro-economic stability, monetary policy transmission and currency substitution".
The views expressed in the report assume significance in the context of the ongoing debates on whether India should ban private cryptocurrencies or not.
The RBI, time and again, has highlighted the deeper macroeconomic concerns posed by the unregulated private cryptocurrency market in India. However, the central bank is open to the idea of introducing a Central Bank Digital Currency (CBDC).
The government is in the process of framing a national law to regulate the cryptocurrency market.
Also, the proliferation of private cryptocurrencies across the globe has sensitised regulators and governments to the associated risks, the report said.
“New illicit financing typologies continue to emerge, including the increasing use of virtual-to-virtual layering schemes that attempt to further muddy transactions in a comparatively easy, cheap and anonymous manner,” it observed.