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Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar on Monday called for an outright ban on cryptocurrencies in the country. There are strong reasons to keep cryptocurrencies away from the formal financial system, the RBI Dy Guv said.
"They threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates creating these currencies or Governments that control them. All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India," the RBI Deputy Governor added.
He further said that cryptocurrencies have specifically been developed to bypass the regulated financial system and it is akin to or even worse than Ponzi schemes.
"Cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi Schemes, and may even be worse," Sankar said while addressing an event organised by the Indian Banks Association.
A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from new investors. It has little or no legitimate earnings.
‘Treat cryptocurrencies with caution’
Sankar further said, "We have seen that crypto-technology is underpinned by a philosophy to evade Government controls. Cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution."
"They undermine financial integrity, especially the KYC regime and AML/CFT regulations and at least potentially facilitate anti-social activities. More substantially, they can (and if allowed most likely will) wreck the currency system, the monetary authority, the banking system, and in general Government's ability to control the economy," he said.
He further added that the RBI has "examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stand up to basic scrutiny."
Illicit transactions involving cryptocurrencies totalled $14 billion in 2021, Shankar said while citing a Wall Street Journal report.
There are about 15 million to 20 million cryptocurrency investors in India, with total holdings of about ₹400 billion, as per industry estimates.
The RBI says the average holding continues to be small at only ₹1,566, which means that "wealth loss, if it is a possibility, is likely to affect only a small fraction of these investors".
The RBI chief last week delivered a stark warning against investing in cryptocurrencies, saying they lacked the underlying value of even a tulip - in a reference to a speculative bubble that gripped the Netherlands in the 17th century.
