Rama Krishna Sangem
RBI still sees Cryptocurrencies as harmful financial instruments. Cryptocurrencies are huge risks to financial stability, and monetary stability, Reserve Bank of India Governor Shantikanta Das said Friday, asserting it may create a situation where the central bank may lose control of money supply in the economy.
Governor Das’ observation is interesting in view of former US president Donald Trump’s solid support to cryptocurrencies. What if, he is elected as the new US president is an interesting question.
‘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,’ RBI Governor Shantikanta Das said during his appearance at the Peterson Institute for International Economics, a think-tank.
RBI will lose control of money supply
If the central bank loses control of money supply in the economy, how does the central bank check liquidity available in the system? How does a central bank control inflation by squeezing money supply or by losing money supply in times of crisis? So, we see crypto as a big risk, and there has to be an international understanding because the transactions are cross-country, he said in response to a question.
There has to be (an) international understanding on this issue, being fully mindful of the huge 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, Das said.
India, he said, was the first country to raise questions about cryptocurrencies. In the G20 under the Indian presidency, there was an agreement to develop an international understanding with regard to how to deal with this whole crypto ecosystem. Some progress has been made in this regard, he added.
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 said. Governor Das is one of the strong opponents of cryptos at a time many countries are accepting or tolerating them.
