Crypto Won’t Work in Emerging Economies Like India: RBI Governor

A day after a report estimated that India has close to 115 million crypto investors, the Governor of the country’s central bank stated that crypto is not useful for developing economies like India.

In a recent interview, Reserve Bank of India Governor Shaktikanta Das said, “Countries like India are differently placed from advanced economies when there is a talk of dollarization of economy…”

Unintended ‘dollarization’ of the economy

“It is not a good thing for our economy to happen. Therefore for emerging market economies, since all cryptos are denominated in the hard currencies by and large [the] dollar, [they] will not work in favor of countries like India. It may work in favor of the advanced economies,” Das added.

His remarks are especially important in light of a recent KuCoin report that shows that, in addition to the staggering 115 million existing crypto investors, the majority of Indian investors intend to increase their holdings in the near future.

Back in May as well, the central bank had warned a parliamentary panel that cryptocurrencies, especially stablecoins, could result in an unintended “dollarization” of the economy.

Speaking to Be[In]Crypto, Vikram R Singh, Founder and CEO of blockchain development company Antier Solutions said that “blockchain technology and the use of virtual currencies both have limitless potential to strengthen economies around the world. “Further adding that “implementing them in a regulated and governed manner would help countries harness its capabilities for [the] public as well as private sector development,”

Meanwhile, the central bank chief is also of the view that while they support innovation in fintech, RBI will also assess the types of risks that are present in the sector and check whether they are being managed well.

Das also told the paper, “I would like to believe that a large number of people would have taken note of the warning signals and the concerns expressed by the Reserve Bank and I would like to believe and anecdotally we are aware that many people did not invest in crypto or of pulled out of crypto, thanks to the kind of caution and concerns that emanated from the Reserve Bank.”

Industry players push for regulations to tackle concerns

In the past well, the country’s central bank had hinted that it is unlikely to change its negative stance on virtual digital assets (VDA) due to the financial stability concerns they raise in the economy along with the money laundering risks.

This month, the Indian Enforcement Directorate (ED) also blocked bank assets that belonged to the troubled crypto exchange Vauld and one of the directors of WazirX operator Zanmai Lab Private Ltd. As they are being investigated for alleged money laundering. 

That said, Das also questioned the intrinsic value of the entire asset class on the back of the recent market downturn. He said, “The prices of something which does not have any underlying base, will not remain high all the time. Therefore it may crash and it has crashed. Ultimately in a situation like this, it is the small investor who loses money, and therefore it is a big risk for the small investors also.”

Vineet Budki, Managing Partner and CEO of crypto venture capital firm Cypher Capital stated that as regulations evolve globally, the current risks could diminish, stating, “Cryptocurrencies are global in nature and their legal status varies from one jurisdiction to another. As we’re on a very nascent stage of crypto adoption, U.S. dollar-based stablecoins like USDC, DAI, and USDT dominate transactions and are the base of entry for most users. We expect this to change as regulations towards crypto become favorable and economies launch their CBDCs to support the local ecosystem.”