Indian Central Bank Governor Cautions of Potential Financial Crisis Caused by Cryptocurrencies

On Wednesday, the head of India's central bank cautioned that if private cryptocurrencies are allowed to expand, the next financial crisis could be triggered by them.

Shaktikanta Das, governor of the Reserve Bank of India, expressed his concern about the potential risks of cryptocurrencies to macroeconomic and financial stability at an event. He used the recent collapse of FTX as an example to illustrate his point.

According to Das, his primary worry is that cryptocurrencies lack any intrinsic worth, labeling them as "speculative" and expressing his opinion that they should be prohibited.

Raghuram Rajan Das expressed his opinion that private cryptocurrency trading should be prohibited, as it is a hundred percent speculative activity. He warned that if it is allowed to grow, the next financial crisis will likely be caused by private cryptocurrencies.

Cryptocurrencies that are not issued by a government or central bank are known as private cryptocurrencies, with Bitcoin being the most well-known example.

RBI Governor Das recently spoke about the Reserve Bank of India's efforts to launch a digital version of the Indian rupee. The pilot program for the digital rupee was launched on December 1st and is currently available for retail use in certain cities. People who have access to the digital rupee can use apps and mobile wallets to make transactions.

The digital rupee is a form of central bank digital currency (CBDC). Numerous central banks globally are exploring the possibility of releasing digital versions of their own currency.

According to Das, Central Bank Digital Currencies (CBDCs) can speed up international payments and eliminate the need for physical processes, like printing paper money.

The People's Bank of China is leading the way in the development of a Central Bank Digital Currency (CBDC). Since late 2020, the Chinese government has been testing the use of its digital yuan in the real world, and plans to make it available to more people in 2021.

The regulation of digital currency was brought to the forefront in 2021 after a massive $1.3 trillion decrease in the worth of the cryptocurrency market and the well-known failure of the FTX exchange.

The Chinese government has put a stop to cryptocurrency trading within its borders.

The Indian government is in the process of creating legislation regarding cryptocurrencies that could potentially restrict certain activities related to digital currencies, while simultaneously establishing a legal structure for the central bank's digital currency.

In the past, central banks have not seen cryptocurrencies as a major threat to the economy, as they were a relatively small asset class. However, more and more people are now raising concerns about the potential macroeconomic effects of cryptocurrencies if they remain unregulated.

In July, Jon Cunliffe, the Bank of England's deputy governor for financial stability, commented that cryptocurrencies may not be sufficiently integrated into the financial system to be a current systemic risk. He also suggested that the line between the crypto world and the traditional financial system will become increasingly blurred.

In October, the U.S. Treasury Department expressed concern that activities involving cryptocurrencies could potentially threaten the stability of the American financial system and highlighted the importance of regulation.