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India Central Bank Chief Warns of Impending Crypto-led Financial Crisis

3 mins
Updated by Geraint Price
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In Brief

  • Indian central bank governor believes private cryptocurrencies could lead to the next financial crash.
  • The Indian central bank is well known for taking a tough stance against private cryptocurrency.
  • He argued that private cryptocurrencies were originated 'to bypass and break the system.'
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Indian central bank Governor Shaktikanta Das said in a summit on Wednesday that private cryptocurrencies could lead to the next financial doomsday.

The Indian central bank, well-known for taking a tough stance against private cryptocurrency, has once again reiterated its position.

Governor’s Remarks on FTX-led Collapse

The Reserve Bank of India (RBI) governor said, “And I would still hold the view that it [crypto] should be prohibited.”

Das notes that different nations have approached the asset class differently, but RBI is adamant about its prohibition. “Because if it is allowed to grow… mark my words, the next financial crisis will come from private cryptocurrencies.”

Das added that crypto developments over the last year, including the FTX collapse, support the belief.

Meanwhile, the RBI chief denied raising war against the asset class, reiterating that crypto has no underlying value. He argued that private cryptocurrencies originated “to bypass and break the system.”

The official said the claims come from the asset’s inherent risks. He said the risks associated with cryptocurrencies threaten financial and macroeconomic stability, forcing the apex bank to maintain this stance. 

The RBI chief also calls private crypto a speculative asset class. He said, “I think that the term private cryptocurrency is a fashionable way of describing what is otherwise 100% speculative activity.”

RBI Promotes CBDC, but Not as a Competitor to Private Crypto

According to Das, introducing the centrally-backed digital rupee has nothing to do with undermining the private sector. He stated, “It’s not a question of offering competition to a private cryptocurrency. I think that is how the world is going to evolve.”

On Dec. 1, four banks in four cities joined to begin the Indian digital rupee retail pilot. The RBI governor was questioned about the usefulness of the launch, given India already has an effective peer-to-peer fast money transfer system in the form of the Unified Payments Interface (UPI).

Das explained that while UPI is a payment system based on centralized banking, CBDC is a currency in itself. The RBI chief said, “CBDC is like currency notes. You go to the bank, you draw it, you keep it in your purse, and you spend it.”

The governor claimed that producing physical notes will soon become obsolete and that CBDCs will have the logistical advantage of being more accessible and faster while supporting the digital rupee as the currency of the future.

“Next point is for international transactions. When two countries have their own CBDCs, it can be instant,” Das remarked as he discussed the benefits of CBDCs remittances.

Govt Reveals Crypto Tax Collection Figures

Interestingly, despite the agencies keeping a negative stance on private crypto, the asset class remains a source of revenue for the government. According to a declaration by the finance ministry to the parliament last week, the Government of India reportedly received a total of about $7.3 million in tax deducted at source (TDS) from the trading of crypto assets.

Notably, the administration kickstarted the taxation regime in the current fiscal.

Recently, Pankaj Chaudhary, Minister of State in the Ministry of Finance, also disclosed that the Directorate of Enforcement (ED) is looking into several cases involving cryptocurrency fraud and money laundering. As reported by local media, his response indicates that as of Dec., around $109.6 million were attached or confiscated in the category. Additionally, the official said three people have been arrested in the mentioned cases. 

However, the country still awaits regulatory clarity in the form of a crypto bill. But, the finance ministry has made it clear in this week’s Parliamentary statement that it is subject to international collaboration.

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Shraddha Sharma
Shraddha is an India-based journalist who worked in business and financial news before diving into the crypto space. As an investment enthusiast, she has also has a keen interest in understanding crypto from a personal finance standpoint.