Shaktikanta Das Raises Caution Over Cryptocurrencies
India’s central bank governor, Shaktikanta Das, has reiterated his concerns regarding cryptocurrencies, emphasizing their potential to disrupt financial systems. Speaking at the Peterson Institute for International Economics during the Macro Week 2024 event, he elaborated on the Reserve Bank of India’s (RBI) cautious stance towards digital currencies.
The Origins of Cryptocurrency and Sovereign Control
During his address, Das revisited the origins of cryptocurrencies, noting that they were designed to circumvent traditional financial systems. He posed a fundamental question regarding the comfort level of authorities and governments with privately issued cryptocurrencies that exhibit characteristics of conventional currency. He argued that the issuance of currency has always been a sovereign function, and allowing cryptocurrencies to gain ground could diminish the central bank’s control over various sectors of the economy, potentially leading to monetary instability.
Risks to Monetary Policy and Financial Stability
Das elaborated on the inherent risks associated with cryptocurrencies, particularly regarding the central bank’s capacity to regulate the money supply. This capability is essential for controlling inflation and managing economic cycles. He raised a poignant question: “If the central bank loses control of the money supply in the economy… how does the bank check liquidity available in the system?” This concern underlines the potential chaos that could arise within financial and monetary systems should cryptocurrencies gain widespread acceptance.
India’s Cautious Approach to Cryptocurrency Regulation
India has adopted a careful and regulated approach to cryptocurrency. Initially, the government imposed a ban on banks from engaging with digital assets. However, this ban was later lifted, indicating a shift towards a more accepting but still cautious paradigm. Currently, Finance Minister Nirmala Sitharaman has introduced a 30% tax on cryptocurrency earnings, which is indicative of a regulatory framework recognizing cryptocurrencies while also ensuring strict oversight.
Ongoing Skepticism Amid Global Developments
Despite international advances in cryptocurrency acceptance, such as the US SEC’s approval of Bitcoin ETFs, Governor Das has remained skeptical about the intrinsic value of digital assets. He has expressed concerns that cryptocurrencies may be part of a speculative bubble. Nonetheless, Das’s perspective on digital currencies is not entirely dismissive; the RBI is actively involved in exploring a Central Bank Digital Currency (CBDC), which would be known as the digital rupee. This initiative aims to preserve the integrity of monetary policy under the control of the RBI.
The Call for International Coordination
Moreover, Das has emphasized the necessity for international cooperation in regulating cryptocurrencies, given their cross-border nature. He envisions the establishment of a global consensus to mitigate risks associated with cryptocurrencies comprehensively. This approach aims not only to protect the Indian financial system but also to contribute to a safer and more stable global financial network.