RBI warns against 'dollarization' of the economy caused by cryptocurrencies


Reserve Bank of India (RBI) officials have warned that the majority of cryptocurrencies are denominated in dollars, which could lead to the dollarization of the Indian economy.
As top officials of the RBI, including Governor
Shaktikanta Das, briefed the Parliamentary Standing Committee on Finance,
chaired by former minister of state for finance Jayant Sinha. Among their
concerns were the challenges cryptocurrencies pose to the stability of the
financial system.
RBI officials told the panel, "It will
seriously undermine the RBI's capacity to determine monetary policy and
regulate the monetary system of the country."
Cryptocurrency may replace the rupee in domestic
and international finance transactions, according to central bank officials,
saying these currencies "will affect the banking system by undermining the
RBI's ability to regulate the flow of money".
In close consultations with officials, it was
revealed that the officials admit there are potential uses for various digital
currencies as a medium of exchange and alternative to the rupee. However, they
warn that with the potential to replace a part of the monetary system, it would
prove difficult to regulate money circulation.
A number of other related shortcomings of crypto,
like the ability to fund terrorism, money laundering, and drug trafficking,
were also cited as reasons for cautious regulation.
This is the RBI's second anti-crypto action this
month. Coinbase CEO Brian Armstrong claimed last week that the RBI is the cause
of the exchange's abrupt suspension of its United Payments Interface (UPI) in
India.
The Indian government appears to be taking a
stifling stance toward digital assets of late, having outlined intentions to
regulate the sector in December.

Pavan A
CBW - External Analyst
INDIA