India’s central bank Governor Shaktikanta Das has made a passionate call for the country to ban virtual currencies in the country on the grounds of their similarities to gambling.
The central bank chief made the call at the Business Today Banking and Economy Summit, reiterating his reasons for the proposed ban. Das argued that the prices of digital assets like BTC and Ethereum (ETH) are based on speculation with no underlying value.
“Anything whose valuation is dependent entirely on make believe is nothing but 100 per cent speculation, or to put it bluntly, it is gambling,” Das said.
The head of the Reserve Bank of India (RBI) stated that the reasoning for digital assets being financial products is an entirely “misplaced argument.” He goes on to say that the best way to regulate the industry is to introduce gambling legislation to control digital assets.
Das noted that digital currencies pose a major threat to India’s financial system, with the spate of increasing dollarization whittling down the influence of the central bank. He pointed at the growing capital flight into virtual currencies away from traditional financial institutions as a major source of concern.
“It will undermine the authority of the RBI and lead to the dollarisation of the economy,” said Das. “These are not empty alarms or signals. A year ago, we said this whole thing (cryptocurrencies) is likely to collapse sooner than later and if you see the developments, I think I don’t need to add anything more.”
The RBI has endured a chequered relationship with digital assets in the past, with the banking regulator precluding financial institutions from facilitating virtual currency transactions. However, India’s Supreme Court set aside the ruling to the delight of virtual currency enthusiasts in the country.
Underlying DLT is good but virtual currencies are a bad omen
Das clarified that the underlying distributed ledger technology (DLT) on which virtual currencies are based offers interesting applications. Finance Minister Nirmala Sitharaman has echoed his opinion as she said the country is expecting a 46% increase in DLT adoption rates.
Several government processes are already leaning on DLT to promote transparency and efficiency in the country, like India’s second-most populous state, Maharashtra deploying the technology in its land registry process.
However, the RBI has stated that its version of a central bank digital currency (CBDC) will be done in a centralized database instead of using DLT, while Sitharaman added that the government has no plans to create a common DLT platform for banks.
“Given the above, DLT at this point in time, is not considered suitable technology except in very small jurisdictions, given the probable low volume of data throughput,” said the RBI.
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