Governor of the Reserve Bank of India (RBI) Shaktikanta Das has issued a grim warning saying that digital assets will trigger the next financial crisis.
The central bank chief gave the warning at a media summit with high-ranking industry players in attendance, where he highlighted the risks posed by the asset class. Das cited the recent implosions of several digital asset firms like FTX, Voyager, and Celsius to back up his claims.
“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,” said Das. “They have no underline, and I have yet to hear good arguments about what public good it serves and that it is a speculative activity.”
To mitigate the risks posed by virtual currencies, Das suggested using central bank digital currencies (CBDCs). The RBI chief noted that CBDCs could halt the increasing ‘cryptoization’ of the economy with the additional benefits of revolutionizing the state of cross-border payments.
“Logisticswise, CBDCs will be much faster, and it is a currency in itself,” Das stated. He added that CBDCs could answer the plaguing problems of money laundering and terrorism financing posed by privately run digital assets.
Other benefits raised by Das for his preference for a digital rupee over virtual currencies include the reduction of expenses related to cash management and encouraging healthy competition in the payments industry.
The state of India’s CBDC development
In line with Das’ comments, the RBI has been making steady progress in developing the digital rupee. The central bank has announced a test for its retail CBDC covering the cities of Mumbai, New Delhi, Bengaluru, and Bhubaneswar with the participation of four major financial institutions.
The RBI confirmed that the pilot will be extended to cover nine additional cities and four more banking institutions. Participating institutions will offer tests to selected merchants and customers, while RBI notes that the CBDC will be issued in the denominations used in issuing physical notes and coins.
The RBI has previously indicated its desire to ban virtual currencies, with the government opting to tax the industry to death. At the moment, India’s virtual currency traders are expected to pay a 30% tax on gains, making it one of the highest in the world.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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