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 governor Shaktikanta Das once again brought up his reservations against crypto, citing its potential to destabilize financial systems.
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.
“The fundamental question,” he posited, is whether authorities or governments are comfortable with privately issued cryptocurrencies possessing all the features of currency.
“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.
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.
Finance Minister Nirmala Sitharaman has introduced a 30% tax on crypto earnings. This tax, with no deductions allowed, reflects a regulatory shift.
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.