In a strong warning to Prime Minister Narendra Modi’s government, a top official at India’s central bank reiterated concerns over cryptocurrency trading, likening the virtual coins to Ponzi schemes.
Seeking a ban on cryptocurrencies, Reserve Bank of India Deputy Governor T. Rabi Sankar said the digital coins threaten “financial sovereignty” and “undermine financial integrity” of a country given that there are no underlying cash flows.
“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse,” Sankar said in a speech at a banking conference on Monday.
So far, India has no regulation on crypto trading. The Supreme Court in March 2020 struck down a ban by the RBI and since then crypto investments have exploded in the country. An October report from Chainalysis, a crypto-analysis firm, found the Indian market grew 641% from July 2020 through June 2021.
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The timing of the sternly-worded speech can’t be overlooked. It follows the government’s announcement earlier this month of levying a capital gains tax on crypto trading, thereby officially acknowledging the virtual coins as assets. Soon after, RBI Governor Shaktikanta Das, a long-time opponent of cryptocurrencies, voiced his concerns over India’s financial stability from such volatile trades and said the digital coins have no underlying asset, “not even a tulip.”
India has seen the second-highest adoption rate for cryptocurrency investments with millions jumping on the bandwagon. That has added to the RBI’s concerns over money laundering, terrorist funding and erosion of household savings.
Cryptocurrency trading can “wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy,” RBI’s Sankar said.
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