The subsequent financial crisis will probably be brought on by private cryptocurrencies if these assets are allowed to grow, the top of India’s central bank warned on Wednesday.
“Cryptocurrencies have… huge inherent risks to our macroeconomic and financial stability,” said Shaktikanta Das, governor of the Reserve Bank of India, on the event. He pointed to the recent collapse of FTX for example.
Das said his important concern is that cryptocurrencies haven’t any underlying value, calling them “speculative” and adding that he believes they ought to be banned.
“It [private cryptocurrency trade] is a 100% speculative activity and I might still be of the opinion that it ought to be banned… because for those who let it grow, for those who try to control it and let it grow, please mark my words, the subsequent financial crisis will come from private cryptocurrencies,” Das said.
Private cryptocurrencies check with digital coins reminiscent of bitcoins.
Das’s comments come because the central bank pushes for its own digital version of the Indian rupee. The Reserve Bank of India launched a digital rupee pilot program for retail use in select cities on December 1. Some users can transact with the digital rupee through apps and mobile wallets.
The digital rupee is a style of central bank digital currency (CBDC). Many central banks all over the world are considering issuing digital versions of their very own currency.
Das said CBDCs could speed up international money transfers and reduce the necessity for logistics, reminiscent of printing banknotes.
The Chinese central bank is essentially the most forward on the planet by way of CBDC development. Beijing has been testing using its digital yuan in the true world since late 2020, expanding its availability to more users this yr.
Digital currency regulation has come under the highlight this yr after the $1.3 trillion cryptocurrency market collapsed and the high-profile collapse of the FTX exchange.
China has successfully banned cryptocurrency trading.
The Indian government is working on a cryptocurrency regulation that could prohibit certain activities related to digital currencies, while making a legal framework for a central bank digital currency.
Central banks have often argued that cryptocurrencies don’t pose a serious risk to the economy, while they represent a much smaller asset class. Nevertheless, an increasing number of voices are warning of the potential macroeconomic impact, especially within the absence of cryptocurrency regulation.
Jon Cunliffe, the Bank of England’s deputy governor for financial stability, said in July that cryptocurrencies will not be “sufficiently integrated” into the financial system to pose “immediate systemic risk.” He noted that in his opinion, the boundaries between the world of cryptocurrencies and the standard financial system will probably be “an increasing number of blurred.”
The U.S. Treasury Department said in October that “cryptocurrency activities could pose a threat to the steadiness of the U.S. financial system,” and stressed the necessity for regulation.