Reserve Bank of India governor Shaktikanta Das has once again shared his stringent stance over cryptocurrencies, saying that digital assets tend to create a lot of financial instability. He also stated that crypto is not useful for developing economies like India.
Das noted that crypto is not good for an emerging economy like India. Since all the cryptos are denominated in hard currencies and the large dollar, it will not work in favor of developing countries like India. It would majorly work in favor of the advanced economies.
His comments came in sync with his and the RBI's general views on cryptocurrencies, which have been very rigid since 2018. Reiterating his concerns over crypto assets, Das also claims that cryptocurrencies can lead to the dollarisation of the economy.
In an interview with ET Now, the governor also noted that digital assets could harm our exchange rate, capital flows, banking sector stability, and the potential for being used for money laundering and illicit money transfer.
The prices of something without any underlying base will not remain high all the time. It may crash, and it has crashed. Ultimately, in a situation like this, the small investor loses money, which is a considerable risk for the small investors, claims Das.
The RBI governor said he was happy to sound warnings about cryptocurrencies sent by the central bank and that many people did not invest in digital assets. He also believes that as crypto supports fintech innovation, RBI will assess the types of risks in the sector and check whether they are being managed well.
His remarks have caused a stir in the crypto space. Recently, KuCoin reported that India has a staggering 115 million existing crypto investors, and most Indian investors intend to increase their holdings soon.
Reacting to his comments, Edul Patel, co-founder, and CEO of Mudrex, said that while RBI's stance on cryptocurrencies has always been rigid, they can create a more transparent environment using blockchain. It can help small investors to make transactions with lower fees in a secure manner.
Vikram R Singh, Founder of blockchain development company Antier Solutions, stated that blockchain technology and virtual currencies host limitless potential to strengthen economies worldwide. Implementing them in a regulated manner would help countries harness their capabilities for developing the public and private sectors.
In 2018, RBI effectively banned Indian banks from supporting crypto transactions. However, the Indian Supreme Court later overturned the order in 2020. In February, RBI Deputy Governor T. Rabi Sankar revealed that an outright ban on cryptocurrencies is perhaps the most apt choice for India.
As the country's central bank continues with its negative stance on virtual digital assets (VDA) this month, the Indian Enforcement Directorate (ED) froze bank assets belonging to the troubled crypto exchange Vauld and one of the directors of WazirX (Zanmai Lab Private Ltd) over money laundering allegations.
Vineet Budki, Managing Partner and CEO of crypto venture capital firm Cypher Capital stated that the current risks could diminish if regulations evolve globally. Cryptocurrencies are global, and their legal status varies from jurisdiction to jurisdiction.
As crypto adoption is still nascent, U.S. dollar-based stablecoins like USDC, DAI, and USDT dominate transactions and serve as a base entry for most users. This must change as regulations towards crypto become favorable, and economies launch their CBDCs to support the local ecosystem.