The RBI Governor recently questioned the acceptance of private cryptocurrencies as currency by governments, warning that such a move could undermine central banks’ control.
Key Points:
– Shaktikanta Das, India’s central bank governor, expressed concerns that private cryptocurrencies could destabilize financial systems by operating as currency.
– Speaking at the Peterson Institute for International Economics during Macro Week 2024, Das emphasized the risks crypto poses to central banks’ control over monetary policy.
Das traced cryptocurrencies’ origins, explaining that they were initially created to bypass traditional finance. He argued that currency issuance is a sovereign duty and that allowing private crypto to function as currency could remove economic control from central banks, leading to monetary instability.
He pointed out that if the central bank lost control over money supply, it would struggle to manage liquidity, inflation, and economic cycles effectively, creating potential financial chaos.
India’s Cautious Approach with Crypto Taxation:
India has taken a conservative stance on crypto by introducing a 30% tax on earnings, with no deductions permitted. This approach reflects the country’s cautious recognition of crypto within its financial system, although under strict regulation.
RBI’s Skepticism Amid Growing Global Crypto Adoption:
Despite the global trend toward crypto acceptance, including the U.S. SEC’s recent Bitcoin ETF approval, Das remains skeptical about cryptocurrencies’ intrinsic value, viewing them as potentially speculative.
However, the RBI is exploring its own Central Bank Digital Currency (CBDC), a digital rupee, which would align with the central bank’s control. Das also advocates for international collaboration to regulate cryptocurrencies, citing their cross-border nature as a reason for a global approach to managing crypto-related risks.
