Cryptos will lead to financial instability, dollarization of the economy, says RBI Governor
The RBI chief said, “cryptos may lead to dollarization of the developing countries like India as the prices of crypto tokens are mostly denominated in dollars.”
He said that this will create serious financial instability in the country. The RBI governor also added that cryptos pose a serious risk for small investors who are prone to lose their money.
“This may favour me if I am sitting in the other part of the world, but not here,” he said. “This will work in the favour of an advanced economy,” he added.
Das’ comments do not come as a surprise as RBI has always been a vocal critic of crypto assets.
The comments came at a time when the crypto prices had hugged the volatility again. The prices of major crypto tokens have plunged as much as 20 per cent in the last five sessions.
The global crypto market capitalization was barely above the $1 trillion mark and Bitcoin has been holding $21,000 levels lately. However, the altcoins have taken an intense beat-down over the renewed inflationary worries.
The RBI governor briefly expressed his happiness on the fact that a large number of people have taken a serious note over the apex lender’s warnings on the cryptos.
However, he emphasized that cryptos can create a lot of financial instability in terms of the ability to determine the monetary policy, the exchange rate of Indian currency, capital flows and the banking sector’s stability.
Das flagged his concerns over the use of crypto assets as a potential tool for money laundering and illicit transfer of funds, which can dent the financial economy of the country.
However, he supported blockchain technology and said that there are various applications and use cases of the technology and many of them are already being utilized.
In June 2022, Das said that crypto has clear dangers and one should be mindful of the emerging risk on the horizon. “Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name,” he said.
India will also launch its own central bank digital currency (CBDC). CBDC is a legal tender issued by a central bank in a digital form. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency.
Finance Minister Nirmala Sitharaman announced the same when she tabled the Union Budget in the Parliament on February 1, 2022, where she called it a ‘digital rupee’ and announced the launch in the current fiscal.
CBDC is a digital form of the national currency, and hence will not be prone to volatile price fluctuations like other cryptos such as Bitcoin (BTC), Ethereum (ETH), Dogecoin (DOGE), and others.
In India, cryptos are deemed virtual digital assets (VDAs) and face a 30 per cent tax on all gains. A TDS of one per cent is also imposed.
