Cryptocurrencies, a threat to the financial system: RBI Guv

Mumbai: Reserve Bank Governor Shaktikanta Das on Thursday described cryptocurrencies as a “clear danger” and said anything that extracts value on the basis of pretense, without any underlying , is just speculation under a fancy name.

The government is in the process of finalizing a consultation document on cryptocurrencies after collecting input from various stakeholders and institutions.

The Reserve Bank of India (RBI) has flagged concerns over cryptocurrencies, which are considered a highly speculative asset.

In the foreword to the 25th issue of the Financial Stability Report (FSR) released on Thursday, Das also said that as the financial system becomes more digital, cyber risks are increasing and require special attention. “We need to be aware of emerging risks looming on the horizon. Cryptocurrencies are an obvious danger. Anything that derives value based on pretending, without any underlying, is just speculation under a fancy name,” Das said.

In recent weeks, cryptocurrencies, which are not backed by any underlying asset, have experienced massive volatility amid global uncertainties. RBI first issued a circular regarding cryptocurrencies in 2018 and prohibited entities regulated by it from trading in such instruments. However, in early 2020, the Supreme Court overturned the circular.

While regulatory clarity has yet to emerge regarding the cryptocurrency space in the country, the government is working to finalize a consultation paper on cryptocurrencies with inputs from various stakeholders and institutions, including the World Bank and the IMF.

In the foreword to the FSR, Das also said that while technology has underpinned the reach of the financial sector and its benefits must be fully exploited, its potential to disrupt financial stability must be avoided.

“As the financial system becomes more and more digital, cyber risks are increasing and require special attention,” he noted. Regarding the economy, he said it was skewed by global fallout and geopolitical tensions. The Indian financial system demonstrates an underlying robustness and resilience to withstand these shocks. “Our endeavor is to address all challenges, external and internal, with solid and innovative solutions for the Indian financial system,” he added.

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Don F. Davis