India's Central Bank Remains Wary of Crypto While Backing Tokenization

However, the RBI is strongly supportive of technologies related to digital assets such as distributed ledger technology and tokenization.

RBI has repeatedly shown that it appreciates the possibilities of blockchain-style technology, but it doesn't agree with the view that privately issued crypto assets are needed to realize the benefits.

Why is RBIZ cautious about crypto?

The so-called “singleness of money” stands out as one the top concerns.

It's basically a principle where all forms of money expressed in the same currency should be able to be exchanged at the same rate. This means physical cash in rupee terms should be worth the same as a rupee that is parked with a commercial bank.

The presence of a large number of privately issued currencies or similar instruments could disrupt the system as consumers may start dealing with assets with significant differences in terms of value or backing as compared to sovereign money.

Malhotra pointed to the possible effects of crypto on monetary policy and capital flow which is of particular relevance in emerging economies with constraints on cross-border capital flow.

These are largely in line with what the RBI has been saying for years.

The RBI has previously warned that mass adoption of crypto assets could blunt the effectiveness of monetary policy, weaken the ability to manage capital flows and also expose the system to other risks affecting financial stability and macroeconomic stability.