The Reserve Bank of India (RBI) has warned that cryptocurrencies could cause the next global financial crisis if allowed to grow, even in a regulated manner.
“It (cryptocurrency) should be prohibited, because if it is allowed to grow...say it’s regulated and allowed to grow...please mark my words that the next financial crisis will come from private cryptocurrencies,” RBI governor Shaktikanta Das said yesterday (Dec. 21).
“Unlike any other asset or product, our main concern with crypto is that it doesn’t have any underlying whatsoever,” Das said at a banking event.
He called them “a fashionable way” of describing the speculative activity and said their global market value had reduced from around $180 billion earlier to $140 billion now.
The cryptocurrency market has indeed crashed in the past year, with over 70 tokens falling over 90% from their all-time highs. More than 3,300 cryptocurrencies listed on CoinGecko in 2021 failed. Private ones, including meme coins like Squid Game, too, fell. More recently, cryptocurrency firm FTX collapsed, causing a market rout.
India has always been wary of cryptocurrencies, with authorities often likening them to Ponzi schemes.
Earlier this year, it imposed a hefty 30% tax on gains made from them and a 1% deduction on each transaction. This discouraged investors from parking funds in virtual coins.
“They [cryptos] don’t believe in the central bank, they don’t believe in a regulated financial world. I’m yet to hear a good argument about what public purpose it serves,” Das said.
Regulators have restricted crypto advertising and payment channels, too, severely depleting companies’ revenues and scaring away global firms planning to invest in India.
Earlier this month, however, the RBI launched its own digital currency on a pilot run for retail use.