Reserve Bank of India Governor Shaktikanta Das has yet again come down heavily on cryptocurrencies, saying digital assets can create a lot of financial instability given the central bank’s power to set monetary policy. Das’s comments are in line with his and the RBI’s general views on cryptocurrencies, which have been somewhat inflexible since 2018. Reiterating his concern about crypto assets, Das also said they could lead to dollarization of the economy.
“Crypto can create a lot of financial volatility given the power of central banks to set monetary policy. It can also have an adverse impact on our exchange rate, on capital flows, on the stability of the banking sector and on the possibility of it being used as a tool for money laundering and illegal transfer of funds,” he told ET Now in an interview on Tuesday, 23 August.
The RBI governor said he was happy to hear the central bank’s warning about cryptocurrencies and many people not investing in digital assets.
“I think I’m happy that we gave these warning signs and I want to believe that a large number of people will take note of the warning signs and the concerns of the Reserve Bank and, incidentally, we are aware that many people have not invested in crypto or withdrawn from crypto, the Reserve Thanks to the caution and concern emanating from the bank,” he said.
Small investors are the only ones who lose money investing in crypto, Das said, as they can get upset due to the lack of an underlying basis. “Things that have no underlying basis will not always be overpriced. So it can crash and crash. Ultimately in such a situation, it is the small investors who lose money and hence it is a big risk for small investors as well.”
“Blockchain technology has various applications. The advantages of the technology are already being capitalized and so we have identified those concerns When it comes to dollarization of the economy, countries like India are kept apart from advanced economies, if I am sitting on the other side of the world and if I am in the US, I will be very happy,” he said.
Cryptocurrency is not a good thing to happen for an emerging economy like India, but according to the RBI governor, it could be a good fit for countries like the US, which are developed economies.
“If I am in India, I will not be happy as an individual or as a central banker. This is not good for our economy. So for emerging market economies, as all cryptos are denominated in hard currency and heavily dollarized, countries like India will not work. This can work in favor of a better economy,” said Shaktikanta Das.
In response to his comments, Edul Patel, co-founder and CEO of Mudrex, said that while the RBI’s stance on cryptocurrencies has always been strict, they are capable of creating a more transparent environment.
RBI’s stance on cryptocurrencies has always been a bit strict since 2018. But, cryptocurrencies are able to create a more transparent environment for transactions using blockchain. It can help small investors transact in a secure manner with low fees. Cryptocurrencies can help diversify portfolios away from traditional assets. They can also hedge against inflation in times of financial crisis,” he told News18.com.
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