The report was released on December 30, 2024.
The RBI remains skeptical on cryptocurrencies
Photo Credit: Reuters
The Reserve Bank of India (RBI) released its Financial Stability Report for 2024 on December 30. In the report, the apex bank shared its observations around the emerging practice of tokenising assets on blockchains. While acknowledging that this practice is still in its early stages, the RBI flagged potential concerns, noting that asset tokenisation is expected to accelerate in 2025 as more countries implement regulations around crypto and blockchain technologies. In addition, the report highlighted RBI's outlook on cryptocurrencies.
As per the RBI, asset tokenisation is a rapidly growing financial innovation. In its report, India's central bank said the tokenisation of financial assets like bank deposits, shares, and government securities is garnering interest among investors.
“It (asset tokenisation) has the potential to deepen the interconnectedness between the traditional financial system and the decentralised financial (DeFi) system, including the crypto-assets ecosystem,” the Financial Stability Report said.
Tokenising an asset involves digitising physical assets on the blockchain into divisible units, each representing a fraction of the underlying entity. Experts believe asset tokenisation can enhance liquidity for physical assets like land or property, enabling owners to sell fractions of their assets without losing the inherent utility value.
However, the RBI report expressed concerns about asset tokenisation, highlighting the potential vulnerabilities it could introduce to existing financial systems.
“Distributed Ledger Technology (DLT)-based tokenisation can expose several several financial stability vulnerabilities, including liquidity, maturity mismatches, and operational fragilities. Given that it is still in its infancy, financial stability concerns of tokenisation of assets are currently limited,” the report stated.
Meanwhile, the RBI's concerns regarding the integration of cryptocurrencies into financial systems remain unchanged. The bank noted it has closely monitored the volatile price fluctuations of crypto assets throughout the year. Referencing the IMF-FSB synthesis paper, the RBI reiterated that the widespread adoption of crypto assets could pose risks to macroeconomic and financial stability.
“It (crypto assets) could reduce the effectiveness of monetary policy, worsen fiscal risks, circumvent capital flow management measures, divert resources available for financing the real economy and threaten global financial stability,” the RBI report mentioned.
That said, the RBI acknowledged the continued growth of the crypto sector, noting an increasing trend of traditional financial systems experimenting with and engaging with crypto assets.
Currently, the Indian government has not set a definitive timeline for finalising comprehensive regulations to govern the crypto sector. In contrast, the US is expected to see several pro-crypto changes in 2025 under President-elect Donald Trump's leadership.
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