Reserve Bank of India warns that digital currencies will ‘dollarize’ the economy

Digital currencies could lead to a high rate of dollarization of the Indian economy, which could be detrimental to the country’s sovereign interests, the Reserve Bank of India (RBI) has warned.

RBI officials appeared before the House of Commons Standing Committee on Finance to discuss digital assets, their effect on the economy and what they believe is the best way forward for the Asian economic giant. And as the Economic Times reports, they had nothing good to say about BTC.

“Almost all cryptocurrencies are denominated in dollars and issued by foreign private entities. This could eventually lead to the dollarization of part of our economy, which would be against the sovereign interest of the country,” the officials, including Governor Shaktikanta Das, told parliament.

Currently, India’s real GDP stands at $2.66 trillion, eighth in the world after recently overtaking France and third in Asia after China and Japan.

According to studies, the number of Indians who own digital assets stands at 15-20 million, with a collective asset worth $5.34 billion. Obviously, it will be some time before digital currency owners can harm the overall economy, but that hasn’t stopped the RBI from repeatedly trying to stifle the fledgling industry.

It is not just the dollarization of the economy that concerns RBI. The central bank has warned of the effect digital currencies could have on its ability to dictate monetary policy.

“This will seriously undermine the RBI’s ability to determine monetary policy and regulate the country’s monetary system,” the official said.

They added that digital assets can be used as a medium of exchange and could replace the rupee, at least partially, in domestic and foreign transactions and could “replace part of the monetary system”. [which] will also compromise the RBI’s ability to regulate the flow of money through the system.

Like many of its peers, RBI has claimed that digital currencies are linked to vices such as money laundering, terrorist financing and drug trafficking. This is a slight misrepresentation that all other Bitcoin skeptics have clung to for the past decade, despite data showing that crime is a tiny fraction of all transactions and has been declining for years. . However, there are still a few bad actors cleaning up illicit funds in cryptocurrency networks that need to be cleaned up.

A recent report by Chainalysis showed that crime accounted for just 0.15% of all new digital currency transactions in 2021, which amounts to $14 billion. This was only a quarter of the 2020 ratio and 22 times less than in 2019.

And even with that number, it was scams and sweepstakes in the digital asset industry, and particularly in DeFi, that contributed to the higher numbers, contrary to a widespread perception among regulators and traditional finance. that criminals use Bitcoin to pay for drugs and launder money.

Also on the RBI’s list of concerns against BTC was that the adoption could negatively impact the banking system. As digital assets are “an attractive asset”, more Indians might be tempted to withdraw their money from the banking system and buy them. This would mean that banks would have fewer resources to lend and could have a huge effect on the growth of the Indian economy, which the IMF predicts will grow by 8.2% this year, will make the fastest growing large economy.

The RBI has never been a fan of digital currencies, and it has been very open with its opposition. He previously banned banks from working with digital asset companies and proposed a blanket industry ban.

Earlier this year, the RBI Deputy Governor claimed that digital currencies are like Ponzi schemes, have no intrinsic value and banning them is the best course of action.

And as India’s Bitcoin community faces antagonism from the RBI, it now has additional taxes to pay in what some say is a government move to slowly kill the industry.

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