In a recent address at the World Economic Forum in Davos, Shaktikanta Das, the Governor of the Reserve Bank of India (RBI), sounded a cautionary note on the significant risks associated with cryptocurrencies. His remarks, particularly focused on emerging market economies, emphasized the potential impact on financial stability, currency values, and monetary systems.
Emerging Markets Face Crypto Peril
Das stated that crypto threatens the rupee stability. He highlighted the inherent risks tied to cryptocurrencies, expressing concerns about their impact on emerging market economies. He stressed the potential threats to financial stability, currency values, and the overall monetary framework. According to him, the absence of any underlying asset raises serious concerns, categorizing cryptocurrencies as speculative instruments.
This isn’t the first time Governor Das has expressed his concern on the fact that crypto threatens rupee stability. He has consistently warned about the potential threats these digital assets pose to financial stability and the possibility of triggering a global financial crisis. When questioned about the future of cryptocurrencies in India, Das succinctly responded with a two-word “very bad,” elaborating on his concerns related to volatility, money laundering, and terror financing risks.
Shifting focus to India’s economic landscape, Das acknowledged the challenge posed by food inflation. He attributed the volatility in food prices to disruptions in global supply chains and unpredictable weather events. The RBI Governor highlighted the impact of heavy rains and floods on vegetable prices but reassured that the central bank remains vigilant in addressing these fluctuations.
Cryptocurrency: Not a Currency, but a Risk
Despite the recent bullish trends in cryptocurrency markets, Das urged investors to exercise caution, particularly emphasizing the risks associated with instruments lacking underlying value. This warning resonates significantly for emerging market economies, with India in focus.
Addressing the nature of cryptocurrencies, Das argued that despite lacking intrinsic value, they have the potential to evolve into a currency. Such a transformation, he warned, could disrupt the payments system and pose risks to the banking sector. His cautionary stance was grounded in the belief that cryptocurrencies carry inherent volatility, making them susceptible to money laundering and terror financing.
US SEC’s Approval of Bitcoin ETFs Raises Concerns
Commenting on the recent approval of spot bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC), Das expressed a contrasting view. While some celebrate the development, he emphasized the significant risks involved. He underlined the divergent responsibilities of the U.S. SEC and the RBI, stating that each entity is accountable for its nation’s well-being.
Long-standing Criticism and Calls for Caution
Das has been a consistent critic of cryptocurrencies, advocating for a complete ban in India. He reiterated his stance from January last year, asserting that crypto threatens the rupee’s stability. He warned that allowing such instruments could lead to a loss of control over the money supply, undermining the RBI’s authority and potentially leading to the dollarization of the economy.
Governor Das thus emphasized the highly speculative nature of cryptocurrencies and called for a cautious approach, especially in a country like India. His warnings underscore the need for regulatory vigilance to address potential risks associated with these digital assets.
Crackdown on Offshore Crypto Exchanges
In a related development, last month, the Financial Intelligence Unit (FIU) issued show cause notices to nine offshore crypto exchanges, including major players like Binance, Kucoin, and Huobi. Alleged non-compliance with Indian anti-money laundering laws prompted the FIU to request the Ministry of Electronics and Information Technology to block their URLs in India. The exchanges have been accused of operating illegally in the country.
Also Read: Peter Schiff Predicts Bitcoin Bloodbath as SEC Chair Gensler Eyes Stricter Crypto Regulations
