In the keynote address at the Indian Banks Association 17th Annual Banking Technology Conference and Awards, RBI Deputy Governer today said that Crypto-technology is even more dangerous than Ponzi Schemes. They can threaten the financial sovereignty of a country. Observing that crypto technology is based on a philosophy of evading government controls, he stated that they had been specifically designed to bypass the regulated financial system.
He said, “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. They threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates creating these currencies or Governments that control them.”
He further said that cryptocurrencies have specifically been developed to bypass the regulated financial system. These should be reason enough to treat them with caution and keep them away from the formal financial system. More significantly, he added, cryptocurrencies have the potential to destabilise the currency system, monetary authority, banking system, and, in general, the Government’s ability to control the economy.
He further stated that “All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India. We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stands up to basic scrutiny.”
He further said that “Additionally, they undermine financial integrity, especially the KYC regime and AML/CFT regulations and at least potentially facilitate anti-social activities. More substantially, they can (and if allowed most likely will) wreck the currency system, the monetary authority, the banking system, and in general Government’s ability to control the economy.”
He further added that “Global advertisements with themes such as the ‘fortune favours the brave’13 is reflected somewhat in our very own ‘lag ja re…kuch to badlega’. It would serve us well if the understanding about cryptocurrencies goes beyond the hype and gets rooted in reason and pragmatism.”
He remarked that one could argue that drug trafficking is a rampant phenomenon despite the ban, and thus drug trafficking should be legalised and regulated. If Cryptocurrencies are prohibited, most law-abiding investors will refrain from investing. Those few individuals who continue to invest are essentially engaging in illegal activity. Such exceptions, he believes, should reinforce the need for a ban rather than invalidate it.