The top officials of the Reserve Bank of India (RBI) informed a parliamentary panel that cryptocurrency might lead to the “dollarisation” of a portion of the economy, which would be detrimental to India’s national interests.
The RBI officials, including governor Shaktikanta Das, spoke to the Parliamentary Standing Committee on Finance, chaired by former minister of state for finance Jayant Sinha, and expressed their concerns about cryptocurrencies, saying they pose a threat to the financial system’s stability, according to sources.
A panel member reported RBI officials as stating, “It will substantially damage the RBI’s competence to make monetary policy and govern the country’s monetary system.”
Central bank officials noted that cryptocurrencies have the potential to be a medium of exchange and to replace the rupee in domestic and cross-border financial transactions, saying that these currencies “can replace a part of the monetary system” and “undermine the RBI’s capacity to regulate the flow of money in the system.”
The central bank authorities warned that cryptos pose a greater danger to the country’s financial system’s stability than they are utilised for terror funding, money laundering, and drug trafficking.
Because almost all cryptocurrencies are dollar-denominated and issued by foreign private firms, the authorities warned the members that this might lead to the dollarisation of a portion of the economy, which would be detrimental to the country’s sovereignty.
The RBI officials claimed that cryptocurrencies would negatively influence the financial sector because individuals will invest their hard-earned wealth in digital currencies, resulting in banks having fewer resources to lend.
Finance Minister Nirmala Sitharaman announced a flat 30% tax on trading in cryptocurrencies and similar assets like non-fungible tokens (NFTs) in the Union Budget earlier this year, and 1% of tax would be deducted at source (TDS) when any such transaction occurs.
India has an estimated 15 million to 20 million crypto investors, with a total crypto market capitalisation of USD 5.34 billion. There are no official statistics on the size of the Indian crypto market.
Former GST council chairman Sushil Modi, former Union Ministers Manish Tewari, and Saugata Roy are among the members of the Sinha-led team, which has been conducting extensive discussions with banking regulators.
Both the RBI and the SEBI are statutory entities that report to Parliament, and the panel has parliamentary authority to summon officials from both agencies to discuss the country’s financial and economic challenges.
Sinha, an IIT Delhi graduate with an MBA from Harvard Business School, served as Minister of State for Finance under the previous Modi administration.
