Top Reserve Bank of India (RBI) officials reportedly told a parliamentary panel that cryptocurrency could lead to the “dollarization” of a portion of the economy, which would be harmful to India’s national interests.
Top RBI officials, including governor Shaktikanta Das, spoke to the Parliamentary Standing Committee on Finance, which is chaired by former finance minister Jayant Sinha, according to PTI.
They expressed their concerns about cryptocurrencies, claiming that they pose a threat to the stability of the financial system.
While cryptocurrencies have the potential to be a medium of exchange and replace the rupee in domestic and cross-border financial transactions, they will also jeopardize the RBI’s ability to manage the flow of money in the system, according to the central bank officials.
Officials also noted that, while cryptocurrencies have the potential to replace the rupee as a medium of exchange in domestic and cross-border financial transactions, they will jeopardize the RBI’s ability to maintain the course of money in the system.
According to reports, they told members that almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, which may eventually lead to the dollarisation of a portion of our economy, which will be in contrast to the country’s sovereign interest.
During a discussion about the effects of cryptocurrency, RBI officials stated that it will harm the banking system because people will invest their hard-earned savings in these currencies, leaving banks with fewer resources to lend.
Finance Minister Nirmala Sitharaman proposed a 30 percent tax on trading in cryptocurrencies and related assets such as non-fungible tokens (NFTs) in the Union Budget earlier this year, with 1 percent deducted at source (TDS) when such transactions occur.
There are an estimated 15 million to 20 million crypto investors in India, with a total crypto holding of $5.34 billion.
The Sinha-led panel, which also includes former GST council head Sushil Modi and former Union Ministers Manish Tewari and Saugata Roy, has met with financial regulators extensively.
The RBI and SEBI are both statutory bodies that report to Parliament, and the panel has parliamentary authority to summon officials from these regulators to discuss financial and economic issues in the country.
However, amid the pioneering fintech revolution, the Union Finance Minister stated last month that the biggest risk of cryptocurrency is money laundering and its use to finance terrorism and that the only key is to regulate utilizing technology.
At the time, she stated during a session at the International Monetary Fund’s (IMF) spring meeting that technology-based regulation is the only way to deal with cryptocurrencies, and that it must be so proficient that it is not trailing the curve, but exceeding it.
