Shanktikanta Das, the Governor of Reserve Bank of India, central and regulatory bank of India, has warned that the cryptocurrencies are a clear danger. He also termed cryptocurrencies as merely speculation under a sophisticated name.
Mr. Das made these comments in his forward to RBI’s latest Financial Stability Report of 2022 which was released on Thursday i.e. 30 June, 2022. RBI has maintained its position on cryptocurrencies that these private cryptocurrencies are neither currencies nor assets.
The RBI Governor has stated in his forward that cryptocurrencies have the potential to disrupt financial stability of countries that is why it needs to be guarded against.
Nevertheless, Mr. Das also acknowledged that the technology underlying the cryptocurrencies has helped in spreading the reach of financial sector and its benefits should be realized.
The blockchain technology is the technology underlying the cryptocurrencies. However, the Governor said that the cryptocurrencies have no underlying value as they are based on make believe and thus pure speculation.
Mr. Das further stated, “Overall, the financial stability risks to the Indian economy are skewed towards global spillovers and geopolitical tensions. Nevertheless, the Indian financial system exhibits underlying robustness and resilience to withstand these shocks.”
“Our endeavour is to face all challenges, external and internal, with strength and innovative solutions for the Indian financial system. The Reserve Bank and other financial sector regulators stand firm in their commitment to ensure financial stability and promote inclusive economic growth”, Mr. Das concluded.
Mr. Das’s forward to The Financial Stability Report of RBI makes hard observations against cryptocurrencies. As per the report, “Cryptocurrencies, typically created on decentralised systems, are designed to bypass the financial system and all its controls, including Anti Money Laundering (AML)/Combatting the Financial Terrorism (CFT) and Know Your Customer (KYC) regulations. They are characterised by highly volatile prices. As a sub-class of cryptocurrencies, viz., stablecoins are supposedly less volatile as they are linked to a currency (or similar assets). Currently, the market capitalisation of a total of 19,920 cryptocurrencies trading on 528 exchanges stands at $908.7 billion10, with Bitcoin accounting for 44 per cent of this market capitalisation. The top two cryptocurrencies account for 59 per cent while the top five account for more than three fourths.”
The report says, “Cryptocurrencies are not currencies as they do not have an issuer, they are not an instrument of debt or a financial asset and they do not have any intrinsic value. At the same time, cryptocurrencies pose risks. Historically, private currencies have resulted in instability over time and in the current context, result in ‘dollarisation’, as they create parallel currency system(s), which can undermine sovereign control over money supply, interest rates and macroeconomic stability. For developing economies, cryptocurrencies can erode capital account regulation, which can weaken exchange rate management. Furthermore, cryptocurrencies can lead to disintermediation from the formal financial system, impairing financial stability.”
You can read the whole report here.
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