Allowing crypto not on table as regulators see no upside: Officials
Crypto threatens macroeconomic stability and pose higher risks to emerging markets and developed economies
New Delhi: There are no significant upsides for allowing cryptocurrencies as regulated entities because they threaten macroeconomic stability and pose higher risks to emerging markets and developed economies, three officials said, adding that crypto assets could at best be treated like gambling instruments.
While the central bank digital currency (CBDC) is the way forward, private cryptocurrencies cannot be treated at par with CBDCs because of risks associated with them, they said, requesting anonymity.
“The views of the Reserve Bank of India on this matter is vindicated by the International Monetary Fund -Financial Stability Board Synthesis Paper. The RBI was in favour of a ban right from the beginning. Any alternate policy option must, therefore, find effective ways to address RBI’s key concerns,” said an official who is part of the decision-making process.
According to the central bank, private cryptocurrencies threaten macroeconomic stability of a country, infringe upon its currency sovereignty, expose consumers to risks and promote illegal activities such as money laundering and terror financing. “The government cannot sidestep the RBI’s concerns while deciding on cryptocurrencies as it is responsible for monetary stability in India and maintains price stability,” a second official said.
The government is engaged with stakeholders on this matter. The synthesis paper, which prescribes a minimum regulatory mechanism, is the basic premise, but India may go for more stringent regulations to protect its economy from the ill-effects of crypto assets, or may even go for an all-out ban. A final view is not yet taken, according to the officials.
The G20 New Delhi Leaders’ Declaration under India’s presidency in September welcomed the synthesis paper that provided a coordinated and comprehensive policy and regulatory framework to regulate crypto assets. The paper also suggested country specific restrictions, including a complete ban, a third official said.
“The synthesis paper is certainly a valuable guidance to both the G20 and non-G20 jurisdictions while framing policies on crypto assets. But, we must also keep it in mind that the paper also reiterated the RBI’s concerns when it said emerging markets and developed economies face higher risks from crypto assets,” he said. “India should not expose its people and its financial systems to unnecessary risks, when the RBI-approved CBDC is there to take the technology forward in a more secured manner.”
The RBI has launched a digital rupee, which will creating new opportunities and reduce the burn in handling, printing and logistics management of cash, he said, adding that the CBDC is one more instrument to catalyse India’s fast emerging digital economy.
Compared to that, a cryptocurrency is neither a commodity nor has any claim on commodities, as they have no intrinsic value, he said. “Cryptocurrencies are designed to bypass the established and regulated intermediation and control arrangements crucial for ensuring integrity and stability of monetary and financial ecosystem. On the other hand, the CBDC provides both innovation and benefits of virtual money,” he added. “At the same time, it ensures consumer protection and avoids any threat to social and economic consequences of private virtual currencies.”
