The deputy governor of the Reserve Bank of India said on Monday that cryptocurrencies are equal to or worse than the Ponzi scheme and that banning them is the smartest option for India.
“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,” T Rabi Sankar said in a speech.
“All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India,” he added.
Shankar said there are two main risks associated with cryptocurrencies: they are meant to be a private currency, and they are designed to avoid official scrutiny by the Financial Integrity Standard.
“Every private currency will eventually replace the Rupee to some extent. Consequently, the role of the Rupee as a currency will be undermined. With one or more private currencies being allowed, there would be parallel currency system(s) in the country,” said T Rabi Sankar.
This, he said, would lead to the ‘Dollarisation’ of the economy and India will lose its policy control of the economy. “With the loss of traction for monetary policy, the ability to control inflation would be materially weakened,” he added.
Cryptocurrencies are meant to bypass established intermediation and control arrangements such as Know-Your-Customer (KYC) regimes, Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) rules, which make them particularly attractive to illegal or illegitimate transactions, said Sankar.
He also rejected the argument that the cryptocurrency ban is unlikely to go into effect. “If cryptocurrencies are banned, the vast majority of investors who are law-abiding would desist from investing. Those few elements who would continue to invest will essentially be carrying out illegal activity. Such exceptions should reinforce the need for a ban, rather than invalidate it.”
Last week, RBI Governor Shaktikanta Das also delivered a stark warning against investing in cryptocurrencies, saying they lacked the underlying value of even a tulip – in a reference to a speculative bubble that gripped the Netherlands in the 17th century.