WASHINGTON: Cryptocurrencies pose a significant threat to financial and monetary stability, warned Reserve Bank of India (RBI) Governor Shaktikanta Das.
Speaking at the Peterson Institute for International Economics, Das highlighted concerns that the rise of cryptocurrencies could jeopardise the central bank’s control over the money supply and lead to economic instability. He called for a concerted international effort to address the risks posed by the unregulated nature of digital currencies.
Risks to stability
RBI Governor made it clear that cryptocurrencies pose risks not only to financial stability but also to the broader monetary framework.
He warned that if these digital assets are allowed to dominate, central banks might lose control over crucial tools like money supply, which are vital for managing liquidity and inflation in the economy.
Challenge to RBI authority
The governor emphasised that cryptocurrencies have the characteristics of traditional money, and if a parallel system of privately issued digital assets develops, it could undermine the RBI’s ability to manage the economy. He pointed out that central bank authority in monitoring liquidity and controlling inflation could be severely impacted.
Call for global cooperation
Given the cross-border nature of cryptocurrency transactions, Das stressed the need for a global consensus to regulate this ecosystem effectively.
While he acknowledged that some progress had been made under India’s G20 presidency, he underscored that further work is necessary to create a robust international framework.
India has been at the forefront of cautioning against the unchecked spread of cryptocurrencies.
According to Das, the RBI was among the first central banks to express serious concerns about the risks associated with digital currencies, leading to discussions at the G20 summit under India’s leadership.
Private Money
The fundamental issue, as highlighted by Das, is whether governments are comfortable with privately issued cryptocurrencies that resemble traditional currencies.
He questioned the sustainability of a private currency system operating alongside fiat money, warning that it could destabilize both the monetary and financial sectors.
Das’s comments reflect a cautious stance towards digital currencies, advocating for a careful and calculated approach to integrating them into the financial system.
He reiterated the need for countries to make independent but informed decisions, stressing that the potential risks warrant a conservative and collaborative strategy.
