Crypto could lead to dollarisation of economy: RBI

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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.’