Friday, Oct 07, 2022

In Fresh Salvo, RBI Deputy Gov Says Digital Rupee Will Kill Private Cryptos

In February 2022, Nirmala Sitharaman had announced in her budget speech, the plan to launch the Digital rupee in this financial year


The Reserve Bank of India (RBI) has repeatedly expressed its views against cryptocurrencies, saying that it poses serious threats to financial stability.

RBI Governor Shaktikanta Das has often reiterated his views against allowing cryptocurrencies, saying they are serious threats to any financial system since they are unregulated by central banks.

In its report published on May 26, the central bank of India revealed in its annual report 2021-2022 a step-by-step and structured approach on launching Central Bank Digital Currencies (CBDCs).

In February 2022, Nirmala Sitharaman had announced in her budget speech, the plan to launch the Digital rupee in this financial year.

In April, RBI Deputy Governor T Rabi Sankar talked about the potential implications of CBDC on India’s financial and monetary system.

Sankar said the central bank would launch CBDC in a very calibrated, graduated manner, assessing impact all along the line.

Now, the RBI Deputy Governor has said the CBDC could 'kill' the reasons for the existence of private cryptocurrencies.

"We (RBI) believe that CBDCs would actually be able to kill whatever little case there could be for private cryptocurrencies," Moneycontrol quoted Rabi Sankar as saying.

"Any tool that can be used for good can also be put to undesirable uses. Technology, at the end of the day, is a tool," Sankar said.

In April this year, Rabi Sankar said the central bank was in a position to begin testing and running pilot projects for a digital rupee.

The RBI Deputy Governor added understanding the limitations of technology was crucial in managing how it was infused into the economy and society such that people did not fall "prey to the hype that technology can create a currency".

"A currency needs an issuer or it needs intrinsic value. Many cryptocurrencies which have neither are still being accepted at face value – not just by gullible investors but also by expert policymakers and academicians," Rabi Sankar said.

"Most cryptocurrencies have an equilibrium value of exactly zero, but they are still priced sometimes at fantastical levels. But even where cryptocurrencies do have value, for example stablecoins that are pegged to a particular currency, their unquestioned acceptance seems puzzling to me."

This comes ahead of the release of the government's consultation paper on crypto.

Speaking at a Finance Ministry event on May 30, Ajay Seth, the Economic Affairs secretary, said that the consultation paper is “fairly ready” and the ministry has consulted both domestic and institutional stakeholders, along with the World Bank and the International Monetary Fund (IMF).

“We hope that we will soon be in a position to finalize our consultation paper. Simultaneously, we are also beginning our work for some sort of a global regulation (to determine) what role India can play,” he said.

Earlier this year, Tabling the Union Budget 2022 in the Parliament, Finance Minister Nirmala Sitharaman announced that income from digital asset transfers will be taxed at a rate of 30 per cent, specifying that no deductions and exemptions will be allowed.