RBI: Blockchain, tokenized assets push lawmakers to stay alert

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The Reserve Bank of India (RBI) feels that the rise of emerging technologies like blockchain, artificial intelligence/machine learning (AI/ML), as well as new products like tokenized assets have pushed lawmakers to stay alert and look for suitable guardrails. 

“The biggest disruptive change that has occurred in the world is usage of technology. This has definitely made our life easier in unprecedented ways, but it has also led to growth of an entire ecosystem which thrives upon this massive outreach,” M. Rajeshwar Rao, a deputy governor of RBI, said in his speech at a “High-Level Policy Conference of Central Banks in the Global South.” 

The conference, organized by the RBI as it celebrates the 90th year of its establishment, was part of the central bank’s endeavor to develop a meaningful dialogue and foster cooperation on the issues confronting the central banks of the global south.

“Advent of new processes backed by blockchain, and AI/ML, new products like tokenized assets, and new entities like BigTechs/FinTechs have compelled policymakers to remain on their toes,” Rao said. 

“We do not want to stifle such progressive practices, but we must provide suitable guardrails to ensure systemic stability. The quest to find the balance between innovation and prudence is thus going to be a challenge,” he added.

Rao’s comments come when India aims to become a digital powerhouse while leveraging emerging technologies as a catalyst for economic growth. However, the world’s fastest growing major economy recently reported an unprecedented rise in digital payments fraud.

Data from RBI’s annual report show that digital payment fraud in India jumped to a record 14.57 billion rupees ($175 million) in the fiscal year that ended in March 2024 (FY2023-24). Card or internet-based frauds accounted for about 80% of total bank and financial institution frauds in FY2023-24, compared to about 49% in the previous year (FY2022-23). However, frauds reported in a year could have occurred several years prior to the year of reporting.

To bolster digital payments while ensuring their safety against fraud, the RBI constituted a committee to examine various aspects of setting up a “Digital Payments Intelligence Platform.” The platform will leverage advanced technologies to mitigate payment fraud risks.

“Today, the digital payment infrastructure facilitates over 160 billion transactions in a year for a value of over ₹2400 trillion (FY 2023-24),” Rao said.

“Retail digital transactions account for over ₹720 trillion of value, out of which transactions amounting to approximately ₹265 trillion are being facilitated through indigenous UPI and IMPS alone. These data points give us a glimpse of journey we have travelled from relatively modest beginnings to a world leader of sort, especially in digitalisation,” he added.

The UPI has seen a tenfold increase in volume over the past years, from 12.5 billion transactions in 2019-20 to 131 billion transactions in 2023-24, or 80% of all digital payment volumes. As a result, India is looking to expand the Unified Payments Interface (UPI) to more countries and make real-time inter-bank transactions using mobile phones available across the globe.

“When the system grows more complex, the financial products and services also evolve suitably. Therefore, the regulated entities need to manage a tricky quadrant of expectations which means enabling rapid digitalization; enhancing the need for strong cybersecurity; ensuring strong KYC norms; and importantly maintaining excellence in customer service,” Rao explained.

The RBI uses blockchain technology for its central bank digital currency (CBDC). While the central bank has not set a target date for its full-fledged rollout, new use cases for the e-rupee are coming up daily.

The RBI has also acknowledged an increased mention of artificial intelligence-related technologies in the annual reports of public sector banks. Earlier, private sector banks were more proactive towards AI.

In order for artificial intelligence (AI) to work right within the law and thrive in the face of growing challenges, it needs to integrate an enterprise blockchain system that ensures data input quality and ownership—allowing it to keep data safe while also guaranteeing the immutability of data. Check out CoinGeek’s coverage on this emerging tech to learn more why Enterprise blockchain will be the backbone of AI. 

Watch: ‘Disruptive’ blockchain can be useful for India