Shaktikanta Das, governor of the Reserve Bank of India, said on Thursday that cryptocurrencies are a “clear danger” and that anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name.
The government is in the process of finalising a consultation paper on cryptocurrencies after gathering inputs from various stakeholders and institutions. The Reserve Bank of India (RBI) has been flagging concerns about cryptocurrencies, which are highly speculative assets.
Shaktikanta Das also highlighted that as the financial system becomes more digitalized, cyber risks are increasing and demand special attention in the prologue to the 25th issue of the Financial Stability Report (FSR), published on Thursday. “We must be mindful of the emerging risks on the horizon. Cryptocurrencies are a clear danger. Anything that derives value based on make-believe, without any underlying, is just speculation under a sophisticated name,” Das said.
In recent weeks, cryptocurrencies, which have no underlying value, have experienced massive volatility due to global uncertainties. The RBI issued its first circular on cryptocurrencies in 2018, prohibiting entities regulated by it from dealing in such instruments. However, the Supreme Court overturned the circular in early 2020.
While regulatory clarity in the cryptocurrency space in the country has yet to emerge, the government is working to finalise a consultation paper on cryptocurrencies with input from various stakeholders and institutions, including the World Bank and the IMF.
Das also stated in the FSR’s foreword that while technology has expanded the reach of the financial sector and its benefits must be fully realised, its potential to disrupt financial stability must be avoided. As the financial system gets increasingly digitalised, cyber risks are growing and need special attention,” he noted. Regarding the economy, he said it is skewed towards global spillovers and geopolitical tensions.
To withstand these shocks, the Indian financial system demonstrates underlying robustness and resilience. “We endeavour to face all challenges, external and internal, with strength and innovative solutions for the Indian financial system,” he added. A noteworthy feature of the current situation is the overall resilience of Indian financial institutions, which should stand the economy in good stead as it strengthens its prospects. This reflects a combination of good governance and risk management practices, he said adding, that the stress test results presented in the FSR demonstrate that banks are well-positioned to withstand even severe stress scenarios without falling below the minimum capital requirement.
According to Shaktikanta Das, the corporate sector is deleveraged, with stronger bottom lines, and the external sector is well-buffered to withstand ongoing terms of trade shocks and portfolio outflows.”In a dynamic environment with considerable uncertainty, we have been proactive and nimble-footed in our policy responses. We have been calibrating our actions to the need of the hour and striving to preserve macroeconomic and financial stability to ensure sustainable and inclusive growth,” he said.