If private cryptocurrencies are allowed to grow, they will cause the next financial crisis, India’s central bank chief warned on Wednesday.
“Cryptocurrencies have… huge inherent risks for our macroeconomic and financial stability,” said Reserve Bank of India Governor Shaktikanta Das at an event. As an example, he cited the recent collapse of FTX.
Das stated that his main concern is that cryptocurrencies have no underlying value, labeling them “speculative” and suggesting that they be banned.
“It [private cryptocurrency trade] is a hundred percent speculative activity, and I would still hold the view that it should be prohibited … because, if it is allowed to grow, if you try to regulate it and allow it to grow, please mark my words, the next financial crisis will come from private cryptocurrencies,” Das said.
Private cryptocurrencies are digital coins like bitcoin.
Das’ remarks come as the RBI works to introduce its own digital version of the Indian rupee. On December 1, the Reserve Bank of India launched a pilot program for the digital rupee in select cities. Certain users can transact with the digital rupee through apps and mobile wallets.
The digital rupee is a type of digital currency issued by a central bank (CBDC). Many central banks around the world are investigating the possibility of issuing digital versions of their own currency.
CBDCs, according to Das, can speed up international money transfers and reduce the need for logistics such as note printing.
China’s central bank is the most advanced in the world in terms of CBDC development. Beijing has been testing the use of its digital yuan in the real world since late 2020, and it will be made available to more users this year.
After a $1.3 trillion drop in the value of the cryptocurrency market and the high-profile collapse of the FTX exchange this year, digital currency regulation has been thrust further into the spotlight.
China has effectively prohibited the trading of cryptocurrencies.
The Indian government is developing cryptocurrency legislation that could prohibit some digital currency activity while also creating a legal framework for the central bank’s digital currency.
When cryptocurrencies were a much smaller asset class, central banks frequently stated that they did not pose a significant risk to the economy. However, an increasing number of voices are warning of the potential macroeconomic impact of cryptocurrencies, particularly if they remain unregulated.
In July, Jon Cunliffe, deputy governor for financial stability at the Bank of England, stated that cryptocurrencies may not be “integrated enough” into the financial system to pose a “immediate systemic risk.” He believes the lines between the crypto world and the traditional financial system will “increasingly blur.”
In October, the US Treasury Department stated that “crypto-asset activities could pose risks to the stability of the US financial system,” emphasizing the need for regulation.
(Adapted from CNBC.com)