Former RBI governor Raghuram Rajan on Wednesday said only a “handful” of the 6,000-odd cryptocurrencies in existence today might survive going forward.
Comparing the craze in cryptocurrency with that of the tulip mania in the Netherlands in the 17th century, Rajan said people hold cryptocurrencies for two reasons—store of value and an asset that might appreciate and for use in payments.
“Do we really need 6,000 cryptocurrencies to do payments? One or two, may be a handful, that is going to survive to be used for payments even if the technology is so useful that it is a substitute for cash and currency. That would suggest that most cryptos are unlikely to survive with high values going forward,” Rajan told CNBC-TV18.
The remarks come a day after the government listed for introduction in Parliament a bill to ban all private cryptocurrencies, with some exceptions.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to be introduced in the Winter Session of Parliament beginning November 29, seeks to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The bill also seeks to prohibit all private cryptocurrencies in India; however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Rajan further said cryptos may pose the same problem as unregulated chit funds, which take money from people and go bust.
“If things have value only because they will have more value down the line, if that's the only reason, then that's what we call a bubble,” Rajan pointed out.