At an event organized in New Delhi, RBI Governor Shaktikanta Das shared his views on cryptocurrencies, their nature and the threat posed to India’s economy. According to him, the perceived value of cryptocurrencies is nothing and is “make-believe”.
RB Governor Shaktikanta Das pointed to the fact that there is no underlying value in cryptocurrencies. He referenced the Tulip Mania of The Netherlands in the 17th century, when the futures contract prices of a form of tulip bud reached surprising heights in a century when the Dutch were among the richest. The ‘mania’ lasted for around three years between 1634 and 1637, and came to an end when sellers could no longer find a buyer. The future contracts were not enforced as the courts considered them as gambling.
The stupendous rise in the value of cryptocurrencies in the last few years has left everyone stunned. The collapse of FTX and the ongoing decline is called the ‘crypto winter’, and there are no signs of abatement.
Shaktikanta Das said that the absence of any underlying value in cryptocurrencies like bitcoin make them totally speculative, and just like gambling. Crypto is therefore not a “financial product”. The rules for crypto, if it is to be allowed, can thus be formed like rules for gambling.
Among the threats, legalizing crypto can create “dollarization” of the Indian economy. These coins can also become a medium of exchange. They will be issued by private companies, and there can be a time when a good share of the transactions, say 20 percent, in the entire country are in the form of crypto.
The issue here is that RBI won’t have control over something like 20% of money, and this will affect its ability to create a monetary policy or to control liquidity levels of money. All of this will thus undermine the authority of the central bank.
He also cited the case of FTX, and pointed out that such warnings of collapse were sounded last year. He also added that banks should safeguard their rights against the encroachment or domination by big tech.
Shaktikanta Das considers the CBDC to be the future of money.
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