Impact of Crypto Assets on Financial Stability
The Reserve Bank of India (RBI) emphasizes the potential risks of widespread use of crypto assets, including stablecoins, on a country's macroeconomic and financial stability.
Potential Risks Highlighted by the RBI
- Excessive use of crypto assets could undermine the effectiveness of monetary policy.
- They pose fiscal risks and can circumvent capital flow management measures.
- Diverts resources from financing the real economy.
- Threatens global financial stability due to increasing linkages with traditional financial systems.
- Stablecoins, in particular, present potential "run risks" similar to traditional banking runs.
Recent Developments in Crypto Markets
The report notes significant growth in the value of virtual digital assets (VDAs) such as bitcoins, driven by geopolitical events.
- Bitcoin price surged to an all-time high of $108,316.
- Market capitalization of stablecoins increased, facilitating lending, borrowing, and trading of digital assets.
Challenges Posed by Distributed Ledger Technology (DLT) and Tokenisation
DLT-based tokenisation poses several financial stability vulnerabilities:
- Liquidity and maturity mismatches.
- Leverage and asset price quality concerns.
- Increased interconnectedness and operational fragilities.
Tokenisation involves creating digital representations of real-world assets using DLT, which can deepen links between traditional and decentralised financial systems.
Current Landscape in India
Major Indian crypto firms like CoinDCX and CoinSwitch have significant user bases, with 16 million and 20 million users respectively, indicating the growing interest in crypto assets in India.
