Cryptocurrency Threatens To ‘Dollarise’ A Part Of Economy: RBI Official

Top officials of the Reserve Bank of India (RBI) have told a parliamentary committee that cryptocurrencies could lead to “dollarisation” of a section of the economy, which would be against India’s sovereign interests. 

Sources said that top officials, including RBI Governor Shaktikanta Das, presented their views before the Parliamentary Standing Committee on Finance headed by former Minister of State for Finance Jayant Sinha. 

He made them aware of his apprehensions regarding cryptocurrencies and said that it would pose challenges to the stability of the financial system. 

According to a member of the committee, RBI officials said, “This would seriously undermine the central bank’s ability to set monetary policy and regulate the country’s monetary system.”

It has the potential to become a medium and can replace the rupee in financial transactions both domestically and across borders. Central bank officials said the currency “could occupy a part of the monetary system and could also undermine the RBI’s ability to regulate the flow of money in the system”. 

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Reserve Bank officials cautioned that cryptocurrencies could also be used for terror financing, money laundering and drug trafficking and could pose a major threat to the stability of the country’s financial system. 

“Almost all cryptocurrencies are dollar-based and issued by foreign private institutions,” he told the parliamentary committee. In such a situation, it is possible that this may lead to dollarization of some part of our economy, which will be against the sovereign interests of the country. 

RBI officials said cryptocurrencies will also have a negative impact on the banking system as being lucrative assets, people may invest their hard earned money in them, resulting in a lack of resources for banks to lend. 

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In this year’s budget, Finance Minister Nirmala Sitharaman had announced a 30 per cent tax on trading in cryptocurrencies and related assets. 

According to an estimate, the number of people investing in crypto in the country is between 15 million and 20 million, who have about $5.34 billion in cryptocurrency. 

There is no official data available about the size of the crypto market in India. This parliamentary committee is in extensive consultation with the finance regulators. 

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