According to reports, top RBI officials informed a parliamentary panel that cryptocurrency might lead to the “dollarization” of a portion of the economy, which would be detrimental to India’s national interests.
Top RBI officials, including its governor Shaktikanta Das, informed the Parliamentary Standing Committee on Finance, led by former minister of state for finance Jayant Sinha, that cryptocurrencies represent a threat to the financial system’s stability, according to sources.
“It will substantially damage the RBI’s ability to make monetary policy and control the country’s monetary system,” a panel member reported RBI officials as saying.
Noting that cryptocurrencies have the potential to be a medium of exchange and to replace the rupee in both domestic and cross-border financial transactions, central bank officials stated that these currencies “can replace a part of the monetary system, but it will also undermine the RBI’s capacity to regulate the flow of money in the system.”
The central bank officials warned that, in addition to being used for terror funding, money laundering, and drug trafficking, cryptos represent a greater danger to the country’s financial system’s stability.
“Almost all cryptocurrencies are dollar-denominated and issued by foreign private corporations; this may eventually lead to the dollarization of a portion of our economy, which would be detrimental to the country’s national interest,” authorities informed members.
When discussing the effects of bitcoin, RBI officials stated that it will have a detrimental influence on the financial sector because individuals may put their hard-earned wealth in digital currencies, resulting in banks having less resources to lend.
In the long run, the crypto bubble will collapse, causing the general population to lose their hard-earned funds, officials said.
In the Union Budget released earlier this year, Finance Minister Nirmala Sitharaman proposed a 30% tax on trading in cryptocurrencies and similar assets such as non-fungible tokens (NFTs), with 1% deducted at source (TDS) when such transactions occur.
In India, there are an estimated 15 million to 20 million crypto investors, with total crypto assets of around $5.34 billion.
There is no official statistics on the size of the Indian crypto market. The Sinha-led team, which includes former GST council chairman Sushil Modi and former Union Ministers Manish Tewari and Saugata Roy, has been conducting extensive discussions with banking authorities.
Both the RBI and SEBI are statutory entities that report to Parliament, and the panel has the parliamentary authority to summon officials from both authorities to discuss the country’s financial and economic challenges.
Sinha, an IIT Delhi graduate with an MBA from Harvard Business School, served as Minister of State for Finance under the previous Modi administration.