Cryptocurrencies could trigger the next financial crisis: RBI boss

Shaktikanta Das, Governor of the Reserve Bank of India (RBI), called for a “ban” on private cryptocurrencies.

Dhiraj Singh | Bloomberg | Getty Images

The next financial crisis will be caused by private cryptocurrencies if those fortunes are allowed to grow, the head of India’s central bank warned on Wednesday.

“Cryptocurrencies have … enormous inherent risks to our macroeconomic and financial stability,” Reserve Bank of India governor Shaktikanta Das said at an event. As an example, he pointed to the recent collapse of FTX.

Das said his main concern is that cryptocurrencies have no underlying value, calling them “speculative” and adding that he thinks they should be banned.

“It [private cryptocurrency trade] is a 100% speculative activity and I would still think it should be banned…because if it’s allowed to grow, if you try to regulate it and let it grow, please mark my words, it will be the next financial crisis come from private cryptocurrencies,” Das said.

Private cryptocurrencies refer to digital coins such as Bitcoin.

Das’s comments come as the central bank pushes to launch its own digital version of the Indian rupee. The Reserve Bank of India launched a digital rupee pilot program on Dec. 1 for retail in select cities. Certain users can transact using the digital rupee through apps and mobile wallets.

The digital rupee is a type of central bank digital currency (CBDC). Many central banks around the world are considering issuing digital versions of their own currency.

Das said that CBDCs can speed up international money transfers and reduce the need for logistics like printing banknotes.

China’s central bank is the most advanced in the world in developing a CBDC. Beijing has been testing real-world use of its digital yuan since late 2020, and is expanding its availability to more users this year.

Digital currency regulation has been pushed further into the spotlight this year after a $1.3 trillion crash in the value of the cryptocurrency market and the high-profile collapse of the FTX exchange.

China has effectively banned cryptocurrency trading.

The Indian government is working on cryptocurrency legislation that could ban some activities around digital currencies while creating a legal framework for the central bank digital currency.

Central banks often said cryptocurrencies didn’t pose much of a risk to the economy, despite being a much smaller asset class. But a growing number of voices are warning of the potential macroeconomic impact, especially if cryptocurrencies are left unregulated.

Jon Cunliffe, deputy governor for financial stability at the Bank of England, said in July that cryptocurrencies may not be “enough integrated into the financial system” to pose an “immediate systemic risk”. He noted that, in his opinion, the lines between the crypto world and the traditional financial system are “increasingly blurring”.

The U.S. Treasury Department said in October that “crypto asset activity could pose risks to the stability of the U.S. financial system” and stressed the need for regulation.

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