Cryptocurrencies can lead to “dollarization” of part of the economy, which would be against India’s sovereign interests, senior RBI officials told a parliamentary panel, sources said.
During a briefing before the Parliamentary Standing Finance Committee chaired by former Minister of State for Finance Jayant Sinha, senior RBI officials including its Governor Shaktikanta Das made clear their misgivings about cryptocurrencies. currencies and said these pose challenges to the stability of the financial system, sources told PTI.
“This will seriously undermine the RBI’s ability to determine monetary policy and regulate the country’s monetary system,” a panelist said quoting RBI officials.
Emphasizing that cryptocurrencies have the potential to be a medium of exchange and to replace the rupee in domestic and cross-border financial transactions, central bank officials said that these currencies “can replace part of the monetary system, it will also undermine the RBI’s ability to regulate the flow of money through the system”.
Warning that in addition to being used for terrorist financing, money laundering and drug trafficking, cryptos pose a greater threat to the stability of the country’s financial system, central bank officials said .
“Almost all cryptocurrencies are denominated in dollars and issued by foreign private entities, this could eventually lead to the dollarization of part of our economy, which would be contrary to the sovereign interest of the country,” said the accountable to members.
Discussing the impacts of cryptocurrency, RBI officials said that it will also have a negative impact on the banking system, as these are attractive assets, people can invest their hard-earned savings in these currencies , which may result in fewer resources for banks to lend.
In the Union budget tabled earlier this year, Finance Minister Nirmala Sitharaman introduced a tax on the trading of cryptocurrencies and related assets such as non-fungible tokens (NFTs) at a fixed rate of 30% and 1% of the tax will be deducted at source (TDS) when such a transaction takes place.
It is estimated that there are between 15 and 20 million crypto investors in India, with total crypto holdings of around $5.34 billion.
No official data is available on the size of the Indian crypto market.
The Sinha-led panel, which includes former GST council chief Sushil Modi, former Union ministers Manish Tewari and Saugata Roy among its members, held extensive deliberations with financial regulators.
As statutory bodies, RBI and SEBI report to Parliament and the panel has the parliamentary responsibility to challenge the officials of these regulators on financial and economic matters of the country.
Sinha, a graduate of IIT Delhi and an MBA from Harvard Business School, was Minister of State for Finance under the previous Modi government.