Central bank It also continued its depreciation of crypto assets, saying they undermine the management of exchange rates and financial regulations.
“Bigtech can expand rapidly and pose a risk to financial stability, which may arise from increased interference from existing institutions,” the central bank said in its note. financial stability report ,FSR) published on Thursday. In addition, the complex interconnected operational relationships between bigtech firms and financial institutions can lead to issues related to concentration and contagion risk and potentially anti-competitive behavior.
The regulator said the emergence of fintech has exposed the banking system to new risks that go beyond prudential issues and intersect with topics such as data privacy, cyber security, consumer protection, competition and compliance with anti-money laundering policies.
“Regulators and supervisors face a challenging balancing act between innovation-friendliness and managing financial stability risks, which requires greater involvement of stakeholders such as regulators, the fintech industry and academia,” the report said. ”
RBI governor warns against crypto
Central bank data shows that the Indian fintech industry, one of the fastest growing in the world, was valued at $50-60 billion in 2020.
It is projected to reach $150 billion in size by 2025. India has the highest fintech adoption rate globally at 87%, and received funding of $8.53 billion in 278 deals during 2021-22.
Separately, the banking regulator once again cautioned against the proliferation of virtual currencies, calling the instruments a ‘threat’. “Cryptocurrencies are a clear threat,” RBI Governor Shaktikanta Das Mentioned in the preface to the report. “Anything that acquires value by virtue of belief, without any underlying belief, is mere speculation under a sophisticated name.”
Das said that while technology has supported expanding financial sector reach across social hierarchies and geography, its benefits must be fully harnessed while protecting against its potential to disrupt financial stability.
The Monetary Authority noted that cryptocurrencies are not currencies because they do not have an issuer; They are not instruments of debt or financial assets and have no intrinsic value. It said that history has shown that private currencies result in instability over time and the ‘dollarization’ of the system as they form parallel currency systems, which provide sovereign control over the money supply, interest rates and macroeconomic stability. can weaken.
“For developing economies, cryptocurrencies could destroy capital account regulation, which could undermine exchange rate management,” the regulator said in the report. “While the degree of cryptography so far appears limited, its growth stems from restrictions on exchange rates and capital controls and limits the effectiveness of domestic monetary policy transmission, threatening monetary sovereignty. Problems with these assets such as that price crashes can spread adversely affect payment systems and real economic activity.”
The regulator also said that while central banks around the world are working on pilots to introduce central bank-backed digital currencies (CBDCs), the shift from bank deposits to such instruments could potentially reduce credit availability. Or the credit could increase the cost. “Most of the central banks in the BIS survey are uncertain about imposing limits on CBDC transactions or balances to counter arbitrage risk,” it said.