Cryptocurrency could lead to dollarisation of economy: RBI officials

Cryptocurrencies could be a “dollarisation” of a part of the economy that would be against India’s sovereign interests, top RBI officials told a parliamentary panel, according to sources.

At a briefing of the Parliamentary Standing Committee on Finance, chaired by former state minister for finance Jayant Sinha, top RBI officials, including its governor Shaktikant Das, made clear their concerns about cryptocurrencies and said they posed a challenge to financial stability, sources told PTI.

“This will severely reduce the RBI’s ability to set monetary policy and regulate the country’s financial system,” a panel member quoted RBI officials as saying.

Citing the possibility of cryptocurrencies being exchanged and replacing the rupee in financial transactions, both internally and externally, central bank officials said the currencies could “replace part of the monetary system and undermine the RBI’s control over the system.”

As well as being used for terrorist financing, money laundering and drug trafficking, cryptocurrencies pose a major threat to the stability of the country’s financial system, central bank officials say.

Almost all cryptocurrencies are issued by dollar-denominated and foreign private companies, which could eventually lead to dollarisation of a part of our economy which would be against the sovereign interests of the country, officials told members.

Discussing the effects of cryptocurrency, RBI officials said it would also have a negative impact on the banking system as these lucrative assets could allow people to invest their hard-earned savings in these currencies, leaving banks with less resources to lend.

In the Union Budget presented earlier this year, Finance Minister Nirmala Sitharaman introduced a tax on transactions in cryptocurrency and related assets such as non-fungible token (NFT) a flat 30 per cent and one per cent tax source (TDS). When there is any such transaction.

India has an estimated 15 million to 20 million crypto investors, with a total crypto holding of about $ 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 Minister Manish Tewari and Saugat Roy as members, has been in extensive discussions with financial regulators.

As a statutory body, both the RBI and the SEBI report to Parliament, and these regulatory officials on the panel have a parliamentary responsibility to call on the financial and economic affairs of the country.

Sinha, a pass out from IIT Delhi and an MBA from Harvard Business School, was the Minister of State for Finance during the previous Modi government.