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Cryptocurrencies Are a Clear Danger: Reserve Bank of India Governor

Cryptocurrencies Are a Clear Danger: Reserve Bank of India Governor

  • Cryptos a clear danger, speculation under a sophisticated name: RBI Governor
  • The RBI in its report states cryptos undermine sovereign control over money supply
  • India's Central bank calls for 'drastic approaches' by authorities

Dubbing digital assets as emerging risks on the horizon, the Reserve Bank of India’s Governor Shaktikanta Das on Thursday said cryptocurrencies are a clear danger and speculation under a sophisticated name.

We must be mindful of the emerging risks on the horizon. Cryptocurrencies are a clear danger. Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.
RBI Governor Shaktikanta Das in the foreword to the 25th issue of the RBI’s Financial Stability Report (FSR)

He added that while technology has supported the reach of the financial sector and its benefits must be fully harnessed, its potential to disrupt financial stability has to be guarded against.

“As the financial system gets increasingly digitalized, cyber risks are growing and need special attention,” he said.

Cryptos result in dollarization

The report noted that private currencies result in ‘dollarization’, as they create a parallel currency system), which can undermine sovereign control over the money supply, interest rates, and macroeconomic stability.

It further added that cryptocurrencies can erode capital account regulation for developing economies, which can weaken exchange rate management.

“Furthermore, cryptocurrencies can lead to disintermediation from the formal financial system, impairing financial stability,” the report states.

Cryptos warrant drastic approach by authorities

It adds that the growing threat of the crypto assets ecosystem warrants drastic approaches by national authorities and that ongoing challenges relating to cyber risk and climate-related financial risks are the two other major focus areas for policymakers.

RBI concerned with vulnerabilities of unbacked crypto assets

Vulnerabilities associated with unbacked crypto assets, stablecoins and decentralized finance (DeFi), and crypto exchanges were also examined by the report.

“Several vulnerabilities associated with crypto-asset markets have been highlighted such as linkages between crypto-asset markets and the regulated financial system; liquidity mismatch, credit, and operational risks, with the potential spillover to short-term funding markets; increased use of leverage in investment strategies; concentration risk of trading platforms; and opacity and lack of regulatory oversight of the sector,” the report further noted.

The report stated that DeFi presented risks such as speculative trading, flash loans, cross-border lending and borrowing, front running, cybersecurity, asymmetry, and fraud, among others.

Murtuza Merchant

Murtuza Merchant

Murtuza Merchant is a senior journalist, having been associated with various publications for over a decade. An avid follower of blockchain tech and cryptocurrencies, he is part of a crypto advisory firm that advises corporates – startups and established firms on media strategies.