Cryptocurrencies have no intrinsic value and could even be worse than Ponzi schemes, RBI deputy governor T Rabi Sankar said on Monday, advocating a ban even while India is undecided on regulating them.
“We have seen that crypto-technology is underpinned by a philosophy to evade government controls,” Sankar said at the 17th Annual Banking Technology Conference and Awards of the Indian Banks’ Association (IBA). “Cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution.”
According to Sankar, cryptocurrencies are not amenable to definition as a currency, asset or commodity and these should be reason enough to keep them away from the formal financial system. That apart, cryptos also undermine financial integrity, especially the KYC regime and Anti-Money Laundering and Combating of Financing of Terrorism regulations and at least potentially facilitate anti-social activities, he said.
That apart, he said that if allowed cryptos can wreck the currency system, the monetary authority, the banking system, and in general the government’s ability to control the economy.
“All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India. We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stand up to basic scrutiny,” said Sankar.
Central banks worldwide have warned against the risks of privately issued cryptocurrencies for reasons ranging from the volatility in their value to risks to financial stability while working on plans to launch their own digital currencies to promote financial inclusion.
RBI’s detailed stance came a few hours after finance Minister Nirmala Sitharaman said there is complete harmony between the central government and the RBI and that they are on the same page on the cryptocurrency issue, according to a Livemint report. Sitharaman, in her 1 February budget speech, proposed a 30% tax on income from transfer of “virtual digital assets”, which many saw as lending a measure of legitimacy to cryptos as assets. Yet, the government has not said how it plans to regulate cryptocurrencies.
Meanwhile, Sankar said there are two fundamental risks of cryptocurrencies. Firstly, they are intended to be private currencies, and secondly, Hey are structured to evade government control with respect to financial integrity standards. Arguing against crypto regulations, Sankar pointed out that to say that banning cryptocurrencies would stunt the absorption of blockchain technology is akin to saying that banning human cloning would kill innovations in biotechnology or banning nuclear weapons would hurt nuclear physics as a discipline.
“There are many other uses of blockchain technology or more generally, distributed ledger technology, that do not involve creation of a virtual currency. Thus, claims that cryptocurrencies must be permitted for blockchain technology to thrive are not sustainable,” he said.
Hypothetically, if India decides to regulate cryptocurrencies, how would it regulate and redress a case of mis-selling as it has no access to the ledger, nor to any audit trail, asked Sankar.
“As it is not always possible to know of the persons who are the management for cryptocurrencies (like a bitcoin), at whom would the regulatory action be directed? If for any reason the entire system collapses what possible regulatory redressal exists for investors? These are questions with very uncomfortable implications that do not have satisfactory solutions,” he said.
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