Private cryptocurrencies will cause the next financial crisis if they are allowed to grow, India’s central bank chief warned on Wednesday.
“Cryptocurrencies have… enormous inherent risks for our macroeconomic and financial stability,” Reserve Bank of India Governor Shaktikanta Das said at an event. He used the recent collapse of FTX as an example.
Das stated that his main concern is that cryptocurrencies have no underlying value and should be banned.
“It [private cryptocurrency trade] is a hundred percent speculative activity, and I would still hold the view that it should be prohibited … because, if it is allowed to grow, if you try to regulate it and allow it to grow, please mark my words, the next financial crisis will come from private cryptocurrencies,” Das said.
Private cryptocurrencies, like bitcoin, are digital coins.
Das’ comments come as the RBI prepares to launch its digital version of the Indian rupee. The Reserve Bank of India launched a pilot program for the digital rupee in select cities on December 1. Users can transact with the digital rupee via apps and mobile wallets.
A central bank’s digital rupee is a type of digital currency (CBDC). Many central banks worldwide are looking into issuing digital versions of their currency.
According to Das, CBDCs can expedite international money transfers while reducing the need for logistics such as note printing.
Regarding CBDC development, China’s central bank is the most advanced globally. Since late 2020, Beijing has been testing the use of its digital yuan in the real world, and it will be made available to more users this year.
Following a $1.3 trillion drop in the value of the cryptocurrency market this year and the high-profile collapse of the FTX exchange, digital currency regulation has been thrust even further into the spotlight.
China has effectively prohibited cryptocurrency trading.
The Indian government is working on cryptocurrency legislation that may outlaw some digital currency activity while establishing a legal framework for the central bank’s digital currency.
When cryptocurrencies were a much smaller asset class, central banks frequently stated that they did not pose a significant economic risk. However, an increasing number of voices are warning of cryptocurrencies’ potential macroeconomic impact, particularly if they remain unregulated.
In July, Jon Cunliffe, the Bank of England’s deputy governor for financial stability, stated that cryptocurrencies may not be “integrated enough” into the financial system to pose an “immediate systemic risk.” He believes the lines between the crypto world and the traditional financial system will “increasingly blur.”
In October, the US Treasury Department stated that “crypto-asset activities may pose risks to the stability of the US financial system,” emphasizing the importance of regulation.