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.
CBW - External Analyst