RBI claims Crypto as a Threat to India’s Financial Stability

Recently the RBI Governor, Shaktikanta Das has stated that private currencies such as cryptocurrencies are a threat to the country’s financial stability. The criticism against cryptocurrencies in a way is to caution and deter investors from trading as this asset class poses certain kinds of risks. He has mentioned in his censure that cryptocurrencies do not have any underlying value as they aren’t backed by any asset, not even a “Tulip”. “I think it is my duty to tell investors that what they are investing in cryptocurrencies, they should keep in mind that they are investing at their own risk. They should keep in mind that these cryptocurrencies have no underlying (asset). Not even a tulip”, said the RBI Governor.

As far as cryptocurrencies are concerned, the RBI stance is very clear. Private cryptocurrencies are a big threat to our financial and macroeconomic stability. They will undermine RBI’s ability to deal with issues related to financial stability. The central bank’s monetary policy would be less effective if crypto is allowed to move freely. Virtual currencies would also undermine banks and other regulated entities. Other concerns about crypto include extreme price volatility and difficulty in tracing transactions.

The RBI view is that crypto should neither be treated as a currency nor an asset, especially given the concerns over illegally channeling funds. Observing that crypto-technology is underpinned by a philosophy to evade government controls, he said they have been specifically developed to bypass the regulated financial system. Moreover, cryptocurrencies can wreck the currency system, monetary authority, banking system and in general the government's ability to control the economy.

At the same time, the government’s approach will have to be balanced so as not to hurt investors but at the same time not let it grow uncontrollably as that could threaten the country’s foreign exchange reserves and lead to disruptions in the economy. In the Union Budget of 2022-23, the government had proposed a 30% tax on gains made from cryptocurrency trading. This move was looked at in a positive manner as it meant that the government had finally thawed cryptocurrencies. In doing so, the government has shut the possibility of an outright ban on cryptocurrencies which the RBI pushed for.

The RBI Governor is reiterating the fact that taxation of cryptocurrencies is perhaps not enough to combat the various risks posed by digital assets.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA