A cryptocurrency prohibition, according to the RBI’s deputy governor, is “probably the most prudent course of action.”
In a speech on Feb. 14, Deputy Governor of the Reserve Bank of India (RBI), Shri T. Rabi Sankar, urged for a ban on cryptocurrencies.
The Reserve Bank of India’s Deputy Governor has joined the list of central bank executives who are openly opposed to cryptocurrencies.
Rabi Sankar described cryptocurrencies, in addition to being a technology, as an “ideology” in his lecture. He said, “Cryptocurrency is based on a concept of evading government restrictions [and has been] built particularly to circumvent the regulated financial system.”
Additionally, he said that cryptocurrencies cannot be meaningfully characterised as money since they lack underlying cash flows, violate KYC/AML requirements, and endanger India’s banking and monetary systems as well as financial sovereignty.
Additionally, Rabi Sankar said that cryptocurrencies lack fundamental value and are similar to Ponzi schemes, citing the RBI’s top governor’s reference to tulip mania on Feb. 10.
“All of these facts suggest that India’s best course of action is to prohibit cryptocurrencies,” Rabi Sankar said at the conclusion of his address.
Rabi Sankar also explored a number of counter-arguments against a prohibition. To begin, he emphasised the fact that sophisticated economies do not normally prohibit cryptocurrency use. He countered that India is not a developed nation and cautioned that corporations that privately issue cryptocurrency might exert influence over India’s economic policies.
Additionally, he argued against the notion that a cryptocurrency prohibition would result in private investors losing capital. Rabi Sankar said that the number of private crypto investors is unknown, that crypto investors are aware of the dangers, and that an exit strategy may be implemented to ensure that such investors do not lose money.
Rabi Sankar further stated that others have argued against imposing a crypto ban because to the difficulties associated with implementing such laws.
He said that such challenges “confirm the necessity for a prohibition, rather than invalidating it.” He did agree, however, that regulating cryptocurrencies may be “ineffective” owing to the fact that the vast majority of cryptocurrencies are, by definition, unregulated.
The Indian Government Is Uninterested in Prohibition
Previously, the Reserve Bank of India took a hard line against bitcoin. According to December 2021 reports, at a board meeting, the bank proposed a blanket ban on cryptocurrencies.
Imposing a ban would almost certainly need collaboration with the Indian government, which looks uninterested in cryptocurrency prohibition. While rumours in November indicated that a crypto ban was imminent, a former finance minister who designed the law said that an all-encompassing ban is improbable.
Regulators in India have previously clashed over cryptocurrency. Beginning in 2018, the nation restricted banks from disbursing crypto but lifted the prohibition in March 2020. In mid-2021, the Reserve Bank of India confirmed banks’ ability to engage with crypto.
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