The Reserve Bank of India (RBI), India’s central bank has expressed concern that cryptocurrency could lead to dollarization of part of India’s economy. It will severely undermine the RBI’s ability to regulate the monetary system in the country.
RBI Crypto Warnings and Dollarization
PTI reported Monday that the Reserve Bank of India (RBI) has warned that cryptocurrency could cause the dollarization of a portion of the Indian economy.
The publication reported that top RBI officials, including Governor Shaktikanta das, expressed concern about cryptocurrency during a briefing with India’s Parliamentary Standing Committee on Finance.
Former Minister of State for Finance Jayant Singhha presided over the committee. It also interrogated the Securities and Exchange Board of India on crypto-related matters.
The RBI officials stressed that cryptocurrencies pose a threat to India’s financial stability.
It will severely undermine the RBI’s ability to regulate the monetary system and determine monetary policy.
India’s central banks also pointed out that cryptocurrency can be used to launder money, terrorist financing, and to traffic drugs.
They also warned that cryptocurrencies could replace the rupee (INR), in domestic and cross-border financial transactions.
Officials from the RBI opined that:
Nearly all cryptocurrency are dollar-denominated, and issued by private foreign entities. It could eventually lead to the dollarization of a portion of our economy, which would be against the country’s sovereign interests.
Further, the RBI officials explained that cryptocurrency would have a negative effect on the banking system. This asset class can be attractive to those who want to invest their hard-earned money in it. Banks will have less resources to lend.
An industry estimate estimates that there are between 15 million and 20 million Indian crypto investors, with crypto holdings totaling $5.34 billion.
Indian officials are currently working on a crypto policy. Cryptocurrency income is already subject to a 30% tax. Crypto transactions will be subject to a 1% tax deducted at source (TDS), starting July 1.