Deputy Governor Calls for Crypto Ban
The deputy governor of the Reserve Bank of India has joined the list of central banking officials who are openly hostile to cryptocurrencies.
In his speech, Rabi Shankar called cryptocurrency an "ideology" apart from a technology. He added that the cryptocurrency is “based on a philosophy to evade government control [and is] developed specifically to bypass the regulated financial system.”
He also said that cryptocurrency cannot be properly defined as a currency, has no underlying cash flow, weakens KYC/AML rules, and has implications for India's banking and monetary system as well. poses a threat to financial sovereignty.
Rabi Shankar additionally suggested that cryptocurrencies have no intrinsic value and are similar to Ponzi schemes, reiterating the comparison to the tulip frenzy made by the RBI head governor on February 10.
"All these factors lead to the conclusion that banning cryptocurrencies is probably the most appropriate option for India," Rabi Shankar said at the end of his speech.
Anti-ban arguments considered
Rabi Shankar also considered various arguments against the ban. First, he drew attention to the argument that advanced economies generally do not ban crypto. In turn, he argued that India is not an advanced economy and warned that privately issued companies that issue cryptocurrencies could control India's economic policy.
He also opposed the idea that a ban on cryptocurrencies could lead to a loss of wealth for private investors. Rabi Shankar claimed that it is not clear how many private crypto investors exist, adding that crypto investors are aware of the risks, and that an exit may be provided so that those investors do not lose money.
Rabi Shankar also said that some people have suggested that crypto bans should not be imposed due to the difficulty in implementing such rules.
He argued that such difficulties "reinforce the need for the ban, rather than invalidate it." However, he acknowledged that it may be "futile to regulate cryptocurrencies" as most cryptocurrencies are, by definition, outside government control.
Government of India has little interest in a bun
The Reserve Bank of India has previously taken a tough stance on cryptocurrency. The December 2021 report states that the bank supported a complete ban on cryptocurrencies during the board meeting.
Enforcing a ban may require cooperation with the Indian government, which has little interest in banning cryptocurrency. Although reports in November suggested an imminent ban on crypto, a former finance minister who drafted the bill suggested that an all-encompassing ban is unlikely.
There has been regulatory conflict around crypto in India before. The country banned banks from introducing crypto in 2018 but reversed the ban in March 2020. The Reserve Bank of India confirmed that banks may work with crypto in mid-2021.
Disclosure: At the time of writing, the author of this article owns BTC, ETH and other cryptocurrencies.