RBI Wants to Cut Banks Off From Cryptocurrencies
India's central bank proposes limiting banks' exposure to crypto and tightening oversight of private stablecoins.
The Reserve Bank of India (RBI), the country's central bank, is seeking to reduce the role of banks and payment systems in the cryptocurrency and private stablecoin market. The proposals are part of the government's ongoing work on a new regulatory framework for digital assets.
According to The Economic Times, RBI officials have proposed banning the use of cryptocurrencies for payments and settlements while also restricting banks' exposure to digital assets and privately issued stablecoins. The central bank argues that placing cryptocurrencies under traditional financial regulations could create the misleading impression that they are safer investments than they actually are.
At the same time, the RBI clarified that these restrictions should not apply to tokenized regulated assets, including government and corporate bonds.
The proposal marks a return to the RBI's earlier stance from 2018, when it effectively cut cryptocurrency exchanges off from the banking system. That decision was overturned by India's Supreme Court in 2020, although banks are still required to comply with KYC, AML, and foreign exchange regulations when dealing with crypto-related activities.
Why Does the RBI Want These Restrictions?
The RBI has consistently warned that cryptocurrencies and privately issued stablecoins could pose risks to the stability of the financial system. In the central bank's view, these assets remain largely speculative. Allowing them greater access to the banking and payments infrastructure could increase financial sector risks while giving investors a false sense of security about the nature of these assets.
