Reserve Bank of India [RBI]: Adoption of cryptocurrencies in rise due to high returns

On 29th August, the Reserve Bank of India [RBI] published its annual report for the year 2017-2018. According to RBI’s observation, a growing interest towards cryptocurrencies can be seen among Indian investors.

Explaining the effects of demonetization in India, RBI states that India has seen a significant decrease in deposit growth in banks due to restrictions on withdrawals and deposits. On 31st March 2018, the economy saw an 11.1 percent drop in deposit growth from the year before.

RBI also mentions that the demonetization effect has lowered peoples’ interest [‘less attractive’] in bank deposits. In connection with the above RBI stated in the document:

“The combination of surplus liquidity conditions in the wake of demonetization and lower offtake
of credit consequent upon slower economic activity also worked to mute the expansion of
deposits in H1.”

Moreover, the above scenario has led to an increase in crypto adoption. The document stated:

“The public disenchantment from lower returns from bank deposits coupled with sobering down of returns from other assets was followed by an interesting development. Cryptocurrencies came under focus globally as an alternative source of high returns.”

RBI explains that the growing interest in cryptos can be seen despite the high risk involved in its trading. Furthermore, RBI believes that the rise of the crypto-ecosystem can disturb the existing ‘payment and settlement system’ possibly leading to influencing ‘the transmission of monetary policy.’

RBI also points to the dangers associated with electronic media and stated:

“…being stored in digital/electronic media – electronic wallets– it is prone to hacking and operational risk, a few instances of which have already been observed globally.”

Following the dangers posed by cryptocurrencies, RBI also adds that the chance of using cryptocurrencies in illicit activities like avoiding tax is very high. Additionally, the RBI believes that this could pave the way to breach in Anti-Money Laundering and Combating the Financing of Terrorism [AML/CFT] acts.

In light of the emergence of cryptocurrencies and discussions revolving around it, RBI had secretly founded a technical unit which will be responsible for governing the emerging financial disrupting cryptocurrencies and blockchain technology.

The unnamed officials with a know-how about the unit stated that the primary aim behind such a thought is to assess the economic revolution taking place in the world and ensure that the financial set up in India is not outdated or disturbed.

Zebpay Co-Founder Mahin Gupta’s say on RBI’s annual report:

“RBI annual report on crypto currencies, finds lower returns from bank deposits and other assets as primary motivation for interest in #bitcoin. Hmm.”

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