RBI warns crypto can lead to dollarisation of economy

RBI officials raised apprehensions over challenges posed by cryptocurrencies and said it could lead to the dollarization of a part of the Indian economy, PTI reported.

RBI officials voiced their concerns on May 16 in a meeting of the Parliamentary Standing Committee on Finance chaired by former Minister of State for Finance,

Jayant Sinha

.

Top RBI officials including the governor

Shaktikanta Das

warned that cryptocurrencies can diminish the RBI’s potential to determine and regulate monetary policy and the monetary system of the country. They said that crypto assets could be a serious challenge to the stability of the financial system of the country.

The committee highlighted various repercussions and threats of crypto market to the Indian economy and the banking system:

* Bank officials said that since majority of the cryptocurrencies are dollar-denominated and issued by foreign private entities, it may thus lead to dollarization of a part of the Indian economy which will be detrimental to the country's sovereign interest.

* They further asserted that people may find crypto asset classes highly attractive and would want to invest their hard-earned savings in it.
This can result in reduction of resources for banks to lend and canl have a negative impact on the banking system.

* The committee also questioned the

Securities and Exchange Board

of India (SEBI) on crypto-related issues.

* RBI officials remarked that one of the threats of cryptocurrencies is that it can also be used for money laundering, terrorism financing, and drug trafficking.

* Furthermore, they warned that cryptocurrencies could be used as a medium of exchange, and replace the rupee (INR) in future in both domestic and cross-border financial transactions.

Although there is no official data on the total number of crypto users and investors in India, according to an estimate there are approximately 15 to 20 million crypto investors in India, with total crypto holdings of around $5.34 billion,

Forbes India

reported.

The government taxed cryptocurrencies income at 30 percent and imposed 1 percent TDS on payments for the transfer of crypto assets over a certain threshold.


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