RBI governor Raghuram Rajan expresses concern over Bitcoin
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Mumbai: Reserve Bank of India (RBI) governor Raghuram Rajan on Wednesday expressed concerns over the regulation of digital currency Bitcoin, saying the virtual nature of the currency raised questions about how its value would be governed.
Rajan said investors and users should exercise caution before using Bitcoin as a consistent means of exchange.
He, however, declined to share details of RBI’s future course of action on Bitcoin.
“We had put out a cautionary advisory explaining some of the concerns that investors and users of Bitcoin should have, without in anyway saying anything about our future course of action. As a currency, I do worry a little bit when the underlying fluctuates tremendously,” Rajan said, speaking at the Nasscom India Leadership Forum 2014.
“One of the values of a currency is stability and the extent a currency is the target of speculation as opposed to primarily a means of exchange, it does create some concerns for the user,” Rajan added. “In that sense, it has a more diminished value as a means of exchange than something more stable.”
Currencies have traditionally been centrally regulated, and the sudden popularity of Bitcoins has invoked mixed reactions from regulators across the globe.
RBI has not yet come out with a final verdict on the regulation of Bitcoin and its comments on the virtual currency are being closely tracked by investors and entrepreneurs.
“There are questions that need to be asked, one of them being, who will maintain value? Can we have confidence in unseen, unknown centres who maintain the value of the currency, or an algorithm that will maintain the value of the currency—we need more credibility there,” said Rajan.
But Rajan didn’t rule out the need for Bitcoins entirely.
“I don’t want to say that there is no future for these virtual currencies, I think it’s a process of evolution, but for now all we’ve done is express the kinds of concerns we have about it, without determining in any which way what we intend to do,” said the 51-year-old Rajan, who took over the top job at RBI in September last year.
Rajan also called for greater collaboration between the country’s $118-billion information technology (IT) industry and the financial services sector to develop technologies that would address the issue of financial inclusion for the masses in India, where at least 40% of the population still does not have access to financial services.
Last year, RBI had set up a committee headed by Nachiket Mor to promote financial inclusion, which involves the spread of banking and financial services to the unbanked segments of the country.
“Technology with its capacity to reduce transaction costs is key to enabling the large-growing local transactions that is at the heart of financial inclusion. Our banks have improved tremendously, but they need the benefit of technology to reach out much further,” said Rajan, addressing an audience of technology industry executives. “So can you, the very successful ICT (information and communication technology industry) industry, partner with the finance industry to revolutionize financial inclusion in this country? I sincerely hope you do.”