At the BFSI Insight Summit, the RBI governor Shaktikanta Das said the next financial crisis could come from cryptocurrency if decentralization carries on. He said cryptocurrency is now worth $140 billion, a loss of around $40 billion in valuation this year.
Addressing the BFSI Insight Summit 2002 organized by the Business Standard, the RBI governor Shaktikanta Das admonished the public against crypto trading by stating that cryptocurrency has certain huge inherent risks to the country’s macroeconomic growth and financial stability.
With this detail, he said the underlying economic activity in the country remains strong yet external factors will cause some dent in the economy.
He highlighted three main endangerments of cryptocurrency. Firstly, private cryptocurrencies owe their lineages to ‘breaking the system’, and they do not believe in the regulated standards set by the financial statutory bodies of the country.
Secondly, the cryptocurrency has no nature of holding any underlying basis, and as well as there is no clarity on what public purpose they serve or operate for. He also mentioned that the whole information is in a hidden format that shows the cryptocurrency is a 100 per cent speculative activity thus making it a risky asset.
The RBI governor also said that the government is “equally serious” about combating inflation and that RBI has long held its view that private cryptocurrencies are a threat to financial stability and has been against decriminalizing its usage.
In the previous month, the Reserve Bank of India launched a pilot project on central bank digital currency (CBDC) and nine prominent banks were selected to take part in the pilot. Union Finance Minister Nirmala Sitharaman had said RBI is in favour of banning cryptocurrencies and there is no way to consider it as legal tender. Minister of State for Finance Pankaj Chaudhary told Lok Sabha that banning cryptos would be effective only when significant international collaboration takes steps to prevent regulatory arbitrage.
CBDC is a digital or virtual currency, controlled by the government and to be used as per the government’s rules. It will be linked to an individual’s bank account which will have all the transaction details and data. CBDCs use a private blockchain network that has prior permission as the cryptocurrencies use a permission-less network and run on the principle of decentralization without predetermined value.
