On Thursday, Reserve Bank of India Governor Shaktikanta Das described cryptocurrencies as a “clear danger” and stated that anything that derives value from make-believe, without any underlying, is simply speculation disguised as a sophisticated name. Following input from various stakeholders and institutions, the government is in the process of finalising a consultation paper on cryptocurrencies. The Reserve Bank of India (RBI) has expressed concern about cryptocurrencies, which are viewed as highly speculative assets.
Shaktikanta Das also stated in the foreword to the 25th issue of the Financial Stability Report (FSR) released on Thursday that as the financial system becomes more digitalized, cyber risks are increasing and require special attention. “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 becomes more digitalized, cyber risks are increasing and require special attention,” he said. He claims that the economy is skewed toward global spillovers and geopolitical tensions.
To withstand these shocks, the Indian financial system demonstrates underlying robustness and resilience.”Our endeavour is to face all challenges, external and internal, with strength and innovative solutions for the Indian financial system,” he added. The overall resilience of Indian financial institutions is a notable feature of the current situation, which should help the economy 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 show that banks are well-positioned to withstand even severe stress scenarios while remaining above 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.