Cryptos have no underlying assets, not even a tulip: Das

People investing in cryptocurrencies are doing so at their own risk and they should be aware that these have no underlying assets, “not even a tulip”, RBI governor Shaktikanta Das said on Thursday, referring to the Dutch tulip bulb asset bubble in the 1600s.

“Our position is quite clear. Private cryptocurrencies or whatever you call them are a threat to India’s macroeconomic and financial stability,” Das said at a post-policy interaction with reporters. “Private cryptocurrencies, which have currency-like character, will undermine RBI’s ability to deal with issues of financial stability.”

Central banks worldwide have warned against the risks of privately issued cryptocurrencies for reasons ranging from the volatility in their value to risks to financial stability while working on plans to launch their own digital currencies to promote financial inclusion. Central banks are particularly apprehensive that decentralized cryptocurrencies may weaken the ability to ensure the financial system’s stability.

However, finance minister Nirmala Sitharaman, in her 1 February budget speech, proposed a 30% tax on income from transfer of “virtual digital assets”, which many saw as lending a measure of legitimacy to cryptos as assets. The government hasn’t said how it plans to regulate cryptocurrencies.

Sitharaman also said RBI would launch a central bank digital currency (CBDC) in the fiscal starting 1 April. Das said RBI is proceeding with caution on launching its digital currency and, therefore, would not disclose a specific timeline.

“Whatever we are doing, it is being done carefully. It is something where one cannot act in haste, which we are not. RBI is examining it with caution since there are quite a few risks associated with this,” he said.

The biggest risk, he believes, is to cybersecurity and the possibility of counterfeiting, a point he had made in December, too. “It is a new product and, globally, central banks working on CBDCs are proceeding with utmost caution, and we too are proceeding with due care and caution,” Das said.

A CBDC is the legal tender issued digitally by a central bank. It is the same as a fiat currency and is exchangeable one-to-one with the fiat currency. Globally, central banks are exploring digital currencies for reasons ranging from seeking to popularize the use of electronic currency to countering the rise of private digital assets like cryptocurrencies.

A 2021 survey by the Bank for International Settlements (BIS) found 86% central banks were actively researching the potential for CBDCs, 60% were experimenting with it, and 14% were deploying pilot projects.

Deputy governor T. Rabi Sankar said RBI has been working on a digital currency for 12-18 months. “This budget has proposed an amendment to the RBI Act to enable issuance of CBDC. Once that is done, we can try the pilots and the proof of concepts,” said Sankar.