Banning Cryptos is the Most Advisable Choice: RBI Dy Guv

The Reserve Bank of India (RBI) deputy governor T Rabi Sankar Monday said that banning private cryptocurrencies is the best option for the country, reiterating its tough stand on the assets class.

Sankar, who was speaking at the IBA Banking Technology Awards, told bankers that even the notorious early-20th century Ponzi scheme were better as the Ponzi plans invested in income earning assets while cryptos are just gambling instruments.

“They (cryptos) threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporations creating these currencies or governments that control them,” Sankar said. “All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India.”

Sankar said that if allowed, private cryptocurrencies have the potential to wreck India’s currency, monetary authority, banking system, and the government’s ability to control the economy.

“Cryptocurrencies are very much like a speculative or gambling contract working like a Ponzi scheme,” Sankar said. “It has been argued that the original scheme devised by Charles Ponzi in 1920 is better than cryptocurrencies have specifically been developed to bypass the regulated enough to treat them with caution.

“They (crypto) can (and if allowed most likely will) wreck the currency system, the monetary authority, the banking system, and in general the government’s ability to control the economy,” Sankar said.

Last week, central bank governor Shaktikanta Das had said private crypto currencies are not worth even a ‘tulip’ in a distinct reference to the 17th century Dutch investment fad, which had caused colossal losses to investors trading in the novel flowers.

The Reserve Bank of India (RBI) governor reiterated his earlier warning that private crypto currencies remain a threat to financial and macroeconomic stability.

“They will undermine the RBI’s ability to deal with issues related to financial stability,” the governor had said.

Sankar linked bitcoin to a zero-coupon perpetual bond, which pays no interest and never pays back the principal. Proliferation of such currencies will undermine the rupee.

“Every private currency will eventually replace the Rupee to some extent,” he said. “Consequently the role of the Rupee as a currency will be undermined. With one or more private currencies being allowed, there would be a parallel currency.”

He added that if such a system was created, India could potentially lose traction of its monetary policy and the ability to control inflation would be materially weakened.

He also said that private currencies are permitted, the banking system’s ability to mobilise deposits in Rupee, and the ability to create credit, would diminish. “In the extreme case where a major part of deposits and credit shift to cryptocurrencies, the result would be a weakened, even crumbling banking system, impairing financial stability,” he said.

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