RBI Deputy Governor T. Rabi Sankar said on Monday 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 stands up to basic scrutiny. We have seen that crypto-technology is underpinned by a philosophy to evade government controls. Cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution," he said, reported news agency ANI.
"We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to ponzi schemes, and may even be worse. These should be reason enough to keep them away from the formal financial system. Additionally, they undermine financial integrity, especially the KYC regime, AML/CFT regulations, and at least potentially facilitate anti-social activities," he said, according to ANI.
This is in line with earlier RBI statements. RBI Governor Shaktikanta Das had last week said cryptocurrencies are a "threat to macroeconomic and financial stability" and cautioned investors against punting on them, days after the Union government's move to tax the gains made from cryptocurrency trades. In the Union Budget for 2022-23 presented in Parliament on February 1, the government proposed levying a 30 per cent tax on gains made on cryptocurrency trades by investors and the announcement was welcomed by cryptocurrency industry players, saying it legitimises their trades.
Das invoked the 17th century 'tulip mania', widely considered to be the first financial bubble, to caution investors, saying the cryptocurrencies do not even possess the value of the exotic flower.
The latest comments from the RBI governor are also a reiteration of institutional concerns on crypto assets. "Private cryptocurrencies or whatever name you call it are a threat to our macroeconomic stability and financial stability. They will undermine RBI's ability to deal with issues of financial stability and macroeconomic stability," Das told reporters.
RBI has been repeatedly flagging its concerns on such instruments and had banned the banking system from aiding such trades, which was struck down by the Supreme Court in 2020. On Thursday, Das said it is his "duty" to caution investors, and told them to keep in mind that they are investing at their own risk. Invoking the historical 'tulip mania', Das said the investors need to keep in mind that there is no value for cryptocurrencies. "They [investors] also need to keep in mind that the cryptocurrency has no underlying, not even a tulip," he noted.
The 'tulip mania' of the 17th century is often cited as a classic example of a financial bubble where the price of something goes up, not due to its intrinsic value but because of speculators wanting to make a profit by selling a bulb of the exotic flower.