India’s central bank, the Reserve Bank of India (RBI), has expressed concerns that cryptocurrencies could lead to the dollarization of a part of the Indian economy. “It will seriously undermine the RBI’s capacity to determine monetary policy and regulate the monetary system of the country.”
RBI’s Crypto Warnings and Dollarization of Economy
The Reserve Bank of India (RBI), the country’s central bank, has warned that cryptocurrencies could lead to the dollarization of a part of the Indian economy, PTI reported Monday, citing unnamed sources.
During a briefing with India’s Parliamentary Standing Committee on Finance, top RBI officials, including Governor Shaktikanta Das, “clearly expressed their apprehensions about cryptocurrencies,” the publication conveyed.
Jayant Sinha (ex-Minister of State for Finance) was the chairman of this committee. They also questioned SEBI on cryptocurrency-related matters.
Emphasizing that cryptocurrencies pose challenges to the stability of India’s financial system, the RBI officials stressed:
It will seriously undermine the RBI’s capacity to determine monetary policy and regulate the monetary system of the country.
India’s central bankers also noted that cryptocurrencies are used for money laundering, terrorism financing, and drug trafficking.
They also warned that cryptocurrency could replace the rupee (INR), in domestic as well as cross-border financial transactions.
According to the RBI, they opined as follows:
Most cryptocurrencies can be converted to dollars and issued from foreign private companies. It may eventually lead to dollarization of a part of our economy which will be against the country’s sovereign interest.
Officials from the RBI explained further that cryptocurrency could have a detrimental effect on the bank system. The asset class may be appealing to those who want to save their hard earned money. This will result in banks being less able to lend.
An industry estimation states that India has approximately 15 to 20 million crypto-investors, and total crypto assets are around $5.34 trillion.
The Indian government is currently working on the country’s crypto policy. Cryptocurrency income is currently taxed at 30 percent. Crypto transactions will be subject to a 1% tax at source (TDS), starting July 1.
Do you agree with the RBI that crypto could lead to the dollarization of India’s economy? Please comment below.
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