RBI Governor: Next Financial Crisis Will Come From Private Cryptocurrencies

RBI Governor, Shaktikanta Das, has predicted that the next financial crisis will happen due to private cryptocurrencies. Speaking at the Business Standard BFSI Insight Summit, Governor Das claimed that those private cryptocurrencies have no “underline” value and pose risks for macroeconomic and financial stability.

“Cryptocurrency poses risks for macroeconomic and financial stability. Private cryptocurrencies owe their origin to bypass the system and break the system. The total value of crypto has come down to $140 billion and $40 billion got wiped out. They have no underline and I yet have to hear good arguments about what public good it serves and that it is a speculative activity,” RBI Governor said.

Commenting about the outlook by the US Federal Reserve, the Indian central bank boss said the actions of the Fed matter to everyone as a large part of the trade is still dollar-denominated.

According to the RBI, the proliferation of cryptocurrency assets poses serious dangers for money laundering and terrorism financing. “We firmly believe that cryptocurrencies have absolutely no underline. Cryptocurrencies have certain huge inherent risks for microeconomic and financial stability.”

There is no credible argument on public good yet on cryptocurrencies, he noted.

He said that RBI’s monetary policies are governed and driven by our own growth-inflation dynamics.

“Our last few inflation and growth estimates have been near accurate,” he added.

Economic activity

Das said that the underlying economic activity in India continues to be strong, but external factors will cause some dent to the economy. He said the RBI tracks 70 fast-moving indicators and most of them are in the “green box”.

It is the external sector, mired by fear of recession or clear visibility about slowing growth in a large part of the world, where the challenges lie, he said, adding that the impact of external demand will “dent” the economy.

The RBI had downward revised its growth estimate for FY23 to 6.8 per cent from the earlier 7 percent , earlier this month.

Speaking about the banking sector, he noted that there is no big gap between deposit and credit growth in absolute terms, base effects make growth numbers on the two look divergent.

“Credit growth of 17.5 percent in December reflects underlying fundamentals of the economy,” RBI Governor said adding that the current growth in credit is also a reflection of pent up demand of last two years.

The credit growth in absolute terms is at Rs 19 lakh crore while deposit growth is at Rs 17.40 lakh crore, the central bank chief said.

Central Bank Digital Currency

Explaining the process of Central Bank Digital Currency (CBDC), Das said that while the UPI involves the intermediation of banks, CBDC is just like currency notes. Instant money transfers between countries with CBDC is possible.

Das noted that the creation of a digital rupee will assist the Indian economy in minimize operating expenses associated with physical cash management, improving the efficiency of payment settlements, and stimulating innovation in cross-border payments.

Das also pointed out the recent fall of the cryptocurrency exchange FTX.

While last month, Shaktikanta Das cleared the air by stating that the pilot CBDC tends to leave no trace with a bank and that there is no need to inculcate fear psychosis in people’s minds regarding confidentiality.

RBI earlier informed that for all individuals, companies, governments, and other entities that can convert it into bank money or cash, CBDC will serve as a means of exchange, legal tender, and a reliable store of value.