India should ban crypto or put financial system at risk: RBI Official
- The best option for India is to ban private cryptocurrencies, one of the country’s top central bankers said on Monday.
- Private crypto is worse than Ponzi schemes and poses a threat to financial stability, Rabi Sankar said.
- India has taken a tough stance on crypto as it develops its “digital rupee” CBDC, expected by March next year.
India’s best choice is to ban private cryptocurrencies because of the risks they pose to the country’s financial systems and sovereignty, a top central banker has warned.
Reserve Bank of India Deputy Governor Rabi Sankar tackled private crypto in a speech at a local banking conference Monday, underlining the firmness of the Indian authorities.
He said cryptocurrencies cannot really be defined as a currency, an asset or a commodity, given that they have no underlying cash flow or intrinsic value, and look like to a “Ponzi” scheme or worse.
For these reasons alone, private cryptocurrencies should be kept out of the formal financial system, he said.
“More substantially, they can (and if allowed most likely will) destroy the monetary system, the monetary authority, the banking system, and in general the government’s ability to control the economy,” Sankar said. .
This adds up to a threat to a country’s financial sovereignty, he warned. It becomes vulnerable to manipulation by the private companies that create digital currencies or the governments that control them, according to Sankar.
“All these factors lead to the conclusion that banning cryptocurrency is perhaps the most sensible choice for India,” he told the conference.
Sankar’s harsh words highlight Indian authorities’ efforts to keep a grip on digital currencies in a country that has an estimated 15-20 million crypto investors. India is second only to Vietnam in crypto adoption, according to the Global Crypto Market Adoption Index 2021 by Chainalysis.
The government plans to impose a 30% tax on income from cryptocurrencies and other digital assets such as NFTs or non-fungible tokens. It also wants to deduct 1% withholding tax on payments related to the purchase of such assets.
Meanwhile, India plans to roll out its own digital currency, dubbed the “digital rupee”, suggesting that it is the private nature of private cryptocurrencies that worries authorities.
India plans to introduce its central bank digital currency, or CBDC, before March 2023. Major central banks such as the United States
and the Bank of England are already developing CBDCs, which offer a centralized and official alternative to pure cryptocurrencies.
But it is China’s central bank that is leading the way in CBDCs, and is it several years ahead of its counterparts in its development agenda. Its digital yuan is currently in use at the Beijing Winter Olympics.
India’s lower house lawmakers introduced a bill in December to ban all private cryptocurrenciesbut the government later said it might introduce regulation instead.
But Sankar said none of the arguments for crypto regulation stand up to basic scrutiny.
“We have seen that crypto-technology is underpinned by a philosophy of evading government controls. Cryptocurrencies were specifically developed to circumvent the regulated financial system. That should be reason enough to treat them with caution.”