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Cryptocurrency is like a Ponzi scheme, warns RBI Deputy Governor T Rabi Sankar

A top RBI official has reiterated concerns over cryptocurrency trading, likening the virtual coins to Ponzi schemes.

A top Reserve Bank of India (RBI) official reiterated concerns over cryptocurrency trading, likening the virtual coins to Ponzi schemes. Seeking a ban on cryptocurrencies in India, Reserve Bank of India Deputy Governor T Rabi Sankar said the digital coins threaten “financial sovereignty” and “undermine financial integrity” of a country given that there are no underlying cash flows.

“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse,” Sankar said in a speech at a banking conference on Monday.

So far, India has no regulation on crypto trading. The Supreme Court in March 2020 struck down a ban by the RBI and since then crypto investments have exploded in the country. An October report from Chainalysis, a crypto-analysis firm, found the Indian market grew 641% from July 2020 through June 2021.  

The timing of the sternly-worded speech can’t be overlooked. It follows the government’s announcement earlier this month of levying a capital gains tax on crypto trading, thereby officially acknowledging the virtual coins as assets. Soon after, RBI Governor Shaktikanta Das, a long-time opponent of cryptocurrencies, voiced his concerns over India’s financial stability from such volatile trades and said the digital coins have no underlying asset, “not even a tulip.”     

India has seen the second-highest adoption rate for cryptocurrency investments with millions jumping on the bandwagon. That has added to the RBI’s concerns over money laundering, terrorist funding and erosion of household savings.  

Cryptocurrency trading can “wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy,” RBI’s Sankar said.




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Banning cryptocurrencies the most advisable solution, says RBI deputy governor

The Reserve Bank of India’s deputy governor T Rabi Sankar on Monday said that banning crypto currency is perhaps the most advisable choice open to India, news agency ANI quoted him as saying. 

“We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated & found that none of them stands up to basic scrutiny,” ANI quoted Sankar as saying. 
 

The RBI deputy governor even equated cryptocurrencies with ponzi schemes.

“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to ponzi schemes, and may even be worse,” he added. 

This comes days after RBI governor Shaktikanta Das had said that cryptocurrencies were a threat to macroeconomy and financial stability, thereby undermining the central bank’s ability to deal with challenges on two fronts. 

“Private cryptocurrencies or whatever name you call it are a threat to our macroeconomic stability and financial stability. They will undermine the RBI’s ability to deal with issues of financial stability and macroeconomic stability,” Das had said. Watch video

 

Meanwhile, finance minister Nirmala Sitharaman on Monday said discussions with regard to private cryptocurrencies and central bank-backed digital currency with the RBI were underway and any decision would be taken after due deliberations, news agency PTI reported. 

“On crypto, I have said that we are in the process of consultation. Whatever decision the government is going to take, will be after the consultation,” she said as per PTI.

The finance minister in her budget speech on February 1 had announced a 30 per cent tax on gains based on such assets, thereby stating that the RBI will issue its own digital currency next year. 

(With agency inputs)

 

 

 


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