RBI Governor Shaktikanta Das stated on Friday that
cryptocurrencies
pose significant risks to both financial and
monetary stability
, warning that they could lead to a scenario where the central bank loses control over the economy's
money supply
.
Das, addressing Peterson Institute for International Economics, a think-tank, said, "I am actually of the opinion that this is something which should not be allowed to dominate the financial system. Because it has huge
financial stability
risks, it has huge monetary stability risks, it also poses risks to the banking system. It also may create a situation where the central bank may lose control of money supply in the economy."
He explained that if the central bank loses control over the money supply, it would be unable to manage the liquidity available in the system. This control is essential for the central bank to curb inflation by tightening money supply or to ease it during crises. Therefore, cryptocurrency poses a significant risk and there needs to be an international consensus given the cross-border nature of these transactions, according the the governor
He further emphasised the need for an international consensus on this issue, fully aware of the substantial risks associated with cryptocurrencies.
“It is not something which I feel it's not something which should be encouraged. This view is not a very popular view, but I think as custodians of financial stability, it is a major concern for central banks world over. Governments are also becoming increasingly aware of the possible downside risks in cryptocurrencies," he said.
The governor said that was the first country to question cryptocurrencies and that in the G20, there was an agreement to develop an international understanding with regard to how to deal with this whole crypto ecosystem, which is under process at present.
The RBI governor further went on to say, "I think more work still needs to be done. From India, from the Reserve Bank's perspective, I think we are one of the first central banks which very clearly voiced its serious concerns about the so-called cryptocurrencies. We see them as big risks, huge risks to financial stability. There are good reasons why we are saying that."
He highlighted the need to understand the origin of cryptocurrencies, which was to bypass the system.
“Currency issuance is a function, a sovereign function. So the bigger question, larger question is whether we are comfortable with crypto, which has characteristics of being a currency, or whether we are comfortable with having a private currency system in parallel to the fiat currency," he added.
He explained that if a portion of the economy becomes dominated by crypto assets or private cryptocurrencies, the central bank risks losing control over the entire monetary system, leading to significant instability. This could also create substantial instability within the financial sector, presenting very serious risks.
In India, he noted, this issue is being approached with careful consideration. While individual countries will make their own decisions, he emphasized that regulations must be strong. He believes this matter requires a cautious and meticulously calculated approach.
English (US) ·