Cryptocurrencies are similar to or worse than ponzi schemes and should be banned, Reserve Bank of India Deputy Governor T Rabi Sankar said on Monday, Reuters reported.
His statement comes just four days after Reserve Bank of India Governor Shaktikanta Das said that private cryptocurrencies are a threat to macroeconomic and financial stability.
At an event organised by the Indian Banks Association, Sankar on Monday said that cryptocurrencies lack any intrinsic value or underlying cash flows and they are not amenable to being defined as a currency, asset or commodity.
“Cryptocurrencies are not currencies, or financial assets or real assets or even digital assets,” Sankar said. “Therefore, it cannot be regulated by any financial sector regulator.”
The deputy governor said that it is not possible to regulate something that cannot be defined.
“All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India,” the official said. He noted that cryptocurrencies are anonymous, decentralised systems and said that this makes them attractive for illegal transactions.
“We have seen that crypto-technology is underpinned by a philosophy to evade government controls,” Sankar said, according to ANI. “Cryptocurrencies have been specifically developed to bypass the regulated financial system. These should be reason enough to treat them with caution.”
Sankar said that blockchain technology, which underpins cryptocurrencies, can be promoted even though private cryptocurrencies are banned.
Blockchain is a digital ledger of transactions that is distributed across the entire network of computer systems.
In the Union Budget for the financial year 2022-’23, presented on February 1, Finance Minister Nirmala Sitharaman had announced a 30% tax on income made from the transfer of digital assets. This tax will apply to cryptocurrencies and non-fungible tokens.
Non-fungible tokens, or NFTs, are blockchain technology-supported digital files such as photos, videos, and audio, that can be traded using cryptocurrencies.
Sitharaman also told Parliament that a decision on whether to ban private cryptocurrencies will be taken based on consultations with stakeholders.
On February 10, Das said it was his duty to caution investors on cryptocurrencies and told them that they were investing at their own risk. “They should keep in mind that these cryptocurrencies have no underlying [asset], not even a tulip,” the governor had said.
Das was referring to the “tulip mania”, which concerned the Dutch financial craze for tulip bulbs in the 1630s. At that time in the Netherlands, tulip bulbs were being traded at extraordinarily high prices – sometimes at the price of houses. This had led to a market crash in February 1637.