India’s Top Banker Warns Crypto Could Undermine Economic Policy Tools

Crypto Reporter

Shalini Nagarajan

Crypto Reporter

Shalini Nagarajan

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Shalini is a crypto reporter who provides in-depth reports on daily developments and regulatory shifts in the cryptocurrency sector.

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October 28, 2024 00:46 EDT

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India’s central bank governor Shaktikanta Das once again brought up his reservations against crypto, citing its potential to destabilize financial systems.

Speaking at the Peterson Institute for International Economics during the Macro Week 2024 on Friday, Das spoke about why the RBI views crypto with a strong sense of caution.

The banker began by revisiting the origin of cryptocurrencies. He noted that they were created to bypass conventional financial systems.

India’s Central Bank Warns of Monetary Instability as Crypto Gains Currency-like Features

“The fundamental question,” he posited, is whether authorities or governments are comfortable with privately issued cryptocurrencies possessing all the features of currency.

He argued that issuing currency is traditionally a sovereign function. Allowing cryptocurrencies to flourish could remove parts of the economy from central bank control. This shift, he warned, could lead to monetary instability.

He further elaborated on the risks, particularly how crypto could undermine the central bank’s ability to manage the money supply, which is crucial for controlling inflation and managing economic cycles.

“If the central bank loses control of money supply in the economy… how does the bank check liquidity available in the system?” he queried, highlighting the potential chaos in financial and monetary systems if cryptocurrencies were to become prevalent.

India Embraces Crypto Cautiously with 30% Tax on Earnings

India has taken a cautious, regulated approach to cryptocurrencies. Initially, it imposed a ban on banks from dealing in these assets. However, this restriction was later lifted. Despite this change, India’s stance on crypto remains largely conservative.

Finance Minister Nirmala Sitharaman has introduced a 30% tax on crypto earnings. This tax, with no deductions allowed, reflects a regulatory shift. It suggests that while cryptocurrencies are recognized in India’s financial framework, they remain under strict oversight.

RBI Chief Maintains Skepticism on Crypto Despite Global Adoption Progress

Governor Das has frequently questioned the intrinsic value of digital assets. He has suggested they could be part of a speculative bubble. International developments, like the US SEC’s approval of Bitcoin ETFs, have not changed his stance on cryptocurrencies.

Despite his reservations, Das has not shut the door on digital currencies entirely. The RBI is actively exploring a Central Bank Digital Currency (CBDC), or digital rupee, which would operate under the RBI’s control, thereby maintaining monetary policy’s integrity.

Moreover, Das has called for international coordination given the cross-border nature of cryptocurrencies. His vision is for a global understanding and possibly regulation of cryptocurrencies to mitigate risks comprehensively.