Next Financial Crisis Will Come from Private Cryptocurrencies: RBI Governor

Reserve Bank of India (RBI) Governor Shaktikanta Das on Wednesday warned that the next financial crisis will come from private cryptocurrencies adding that he still holds the view that cryptocurrencies should be prohibited.

The governor of the country’s central bank also added that cryptocurrencies have no underlying value and pose risks for macroeconomic and financial stability.

Earlier this month, a top RBI official stated that transactions via central bank digital currencies (CBDC) would remain anonymous “to a certain degree”, adding that technology and legal provisions could be explored to ensure that anonymity. India started the pilot project for its digital currency, or e-rupee, from November 1, when it was opened for an initial trial.

Then only being used by banks for settlements with each other, the scope of the project was expanded to include consumer and retailer-led transactions from December 1.

The RBI has not yet clarified the degree to which CBDC transactions will be anonymous, but the income tax department allows cash transactions up to a certain limit to be carried out without furnishing any government identity proof and the same rules may apply, RBI governor Shaktikanta Das said at a post policy press conference.

At present, it is mandatory to furnish proof of Permanent Account Number, a unique 10-digit alphanumeric number issued by the Income Tax Department to taxpayers, for any deposits above Rs. 50,000.

Bankers have raised concerns about the project saying that in its current form, they don’t see any benefits of CBDCs which is similar to internet-based banking transactions.

Many of them also say that the Unified Payments Interface (UPI) instant real-time consumer payments system, that lets users transfer money between banks without disclosing account details, could be a tough competitor for retail use of e-rupee.

© Thomson Reuters 2022