It has been reported that The Reserve Bank of India stepped up its attack on cryptocurrencies with deputy governor T. Rabi Sankar telling bankers that even the notorious 20th century Ponzi scheme was better than the current crypto assets as Ponzi schemes invested in income earning assets while cryptos are just gambling instruments.
Sankar said that if allowed private cryptocurrencies have the potential to wreck India’s currency, monetary authority, banking system, and the Government’s ability to control the economy. “Cryptocurrencies are very much like a speculative or gambling contract working like a Ponzi scheme,” Sankar said while speaking at the IBA Banking Technology Awards. “It has been argued that the original scheme devised by Charles Ponzi in 1920 is better than cryptocurrencies from a social perspective. Even Ponzi schemes invest in income earning assets”, the report said.
Private Cryptocurrency
Sankar further said that since cryptocurrencies have specifically been developed to bypass the regulated financial system, it is reason enough to treat them with caution. “They (crypto) can (and if allowed most likely will) wreck the currency system, the monetary authority, the banking system, and in general Government’s ability to control the economy,” Sankar said.
“They threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates creating these currencies or Governments that control them.” Last week central bank governor Shaktikanta Das had said private cryptocurrencies are not worth even a ‘tulip’ in a distinct reference to the 17th century Dutch investment fad, which had caused colossal losses to investors trading in the novel flowers. The Reserve Bank of India (RBI) governor reiterated his earlier warnings that private crypto currencies remain a threat to financial and macroeconomic stability, the report said.
“They will undermine the RBI’s ability to deal with issues related to financial stability,” the governor had said. Sankar likened bitcoin to a zero-coupon perpetual bond, which pays no interest and never pay back the principal, Sankar sounded a word of caution and said that proliferation of such currencies will undermine the rupee. “Every private currency will eventually replace the Rupee to some extent,” the report said.
Parallel Currency System
“Consequently, the role of the Rupee as a currency will be undermined. With one or more private currencies being allowed, there would be parallel currency system(s) in the country.“ He added that if such a system was created, India could potentially lose traction of its monetary policy and the ability to control inflation would be materially weakened. He also said that if private currencies are permitted, the banking system’s ability to mobilise deposits in Rupees, and the ability to create credit, would diminished. “In the extreme case where a major part of deposits and credit shift to cryptocurrencies, the result would be a weakened, even crumbling, banking system, impairing financial stability,” the report said. (Economic Times)
