Crypto could lead to dollarisation of economy: RBI
Reserve Bank of India officials stated that cryptocurrencies could be a threat to the central bank's monetary policy and a threat to sovereign interest
By Shashank Bhardwaj
Reserve Bank of India (RBI) officials told a parliamentary committee on Finance that cryptocurrencies can result in a part of the Indian economy becoming dollarised. They further stated that the decentralised currencies could also undermine RBI’s capacity to regulate the flow of money and harm sovereign interest. The Parliamentary Standing Committee on Finance was chaired by the former minister of state for finance, Jayant Sinha.
According to a Press Trust of India report, the officials believed that cryptocurrencies had the potential as a medium of exchange and to replace the Indian rupee in both domestic and international financial transactions. One of the RBI officials said, “It will seriously undermine the RBI's capacity to determine monetary policy and regulate the monetary system of the country. It could replace a part of the monetary system undermining RBI's capacity to regulate the flow of money in the system.”
RBI’s governor, Shaktikanta Das, also expressed his apprehensions on how cryptocurrencies could be a threat to the stability of the financial system. The officials reiterated the RBI stance saying that cryptocurrencies should be banned.
They also talked about how all cryptocurrencies are dollar-denominated and privately owned. Before the Parliamentary Standing Committee, the officials said, “Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities. It may eventually lead to dollarisation of a part of our economy, which will be against the country's sovereign interest.”
RBI had talked about the same concerns before the parliamentary committee last year too. A source from the parliamentary committee revealed that RBI is concerned ‘about the dangers of dollarisation and banning crypto with regard to its use case as a currency or legal tender not necessarily as an asset class.’
The representatives of the Indian crypto industry, who had presented their views before the same parliamentary committee, were ‘chided’ for overstating the significance of crypto without taking into consideration the challenges, such as money laundering, drug trafficking, and terror funding, posed by cryptocurrencies.
Earlier this year, the Union Budget provisions imposed a flat 30 percent tax on cryptocurrencies and other digital assets, such as NFTs, and a 1 percent TDS on any transaction involving cryptocurrencies. There is no official data available on the size of the Indian crypto market. But the estimated number of cryptocurrency users in the country is around 15 million to 20 million crypto investors, with total crypto holdings amounting to $5.34 billion.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash