Cryptocurrencies pose huge risk to financial stability: RBI Governor Shantikanta Das

By Sandy Verma On Oct 26, 2024

WASHINGTON�वाशिंगटन: Reserve Bank of India Governor Shantikanta Das on Friday said cryptocurrencies pose a huge risk to financial stability and monetary stability. He stressed that this could lead to a situation where the central bank could lose control over the money supply in the economy. I'm really of the opinion that this is something that should not be allowed to dominate the financial system. Because it poses huge risks to financial stability, it poses huge risks to monetary stability, it also poses risks to the banking system. It could also lead to a situation where the central bank may lose control over the money supply in the economy,” RBI Governor Shantikanta Das said during his appearance at think-tank Peterson Institute for International Economics. “If the central bank loses control over the money supply in the economy, How does the central bank check the liquidity available in the system if it loses control over the supply? How does a central bank control inflation by reducing the money supply or losing the money supply in times of crisis? So, we consider crypto a big risk, and there needs to be an international understanding of it, because the transactions are cross-country,” he said in response to a question.

“There needs to be an international understanding of this issue,” Das said, “to be fully conscious of the huge risks associated with cryptocurrencies. I don't think it should be encouraged. This point of view is not very popular, but I think As guardians of financial stability, this is a major concern for central banks around the world. Governments are also becoming increasingly aware of the potential downside risks in cryptocurrencies.” He said that India was the first country to raise questions about cryptocurrencies. At the G20 under India's chairmanship, an agreement was reached to develop an international understanding regarding how to deal with this entire crypto ecosystem. He said that some progress has been made in this regard. He said, “I think more work still needs to be done. From India, from the Reserve Bank perspective, I think we are one of the first central banks to voice their serious concerns about so-called cryptocurrencies. Very clearly expressed.

We see them as big risks, very big risks, to financial stability. We have good reasons for saying this.” He said, “First of all, we have to understand the origins of cryptocurrencies. It originated to bypass the system. Cryptocurrency has all the properties of money. The basic question is whether we, as official governments, are comfortable with a privately issued cryptocurrency that has all the characteristics of a currency issue. Issuing currency is an act, a sovereign act. So the big question, the big question is whether we are comfortable with crypto having the characteristics of being a currency, or whether we are comfortable having a private currency system parallel to fiat currency.” “Obviously, if your economy has a If the fixed portion is falling apart and is dominated by crypto assets or private crypto assets, the central bank loses control over the entire monetary system. Therefore, this will cause a lot of instability in the monetary system. It could also lead to greater instability in the financial sector. So there are huge risks,” he said.