Cryptocurrencies can lead to the “dollarization” of a part of the economy, which could be against the country’s sovereign interest, top officials of the Reserve Bank of India, the country’s central bank, told a parliamentary committee on finance, according to a Press Trust of India report.
- “Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, it may eventually lead to dollarization of a part of our economy, which will be against the country’s sovereign interest,” the officials told members of the finance committee, including Jayant Sinha, chairman of the Parliamentary Standing Committee on Finance.
- Amid the “crypto crash” last week, central bank officials said cryptocurrencies have the potential to become a medium of exchange and replace the rupee in both domestic and international financial transactions, according to the report.
- “It will seriously undermine the RBI’s capacity to determine monetary policy and regulate the monetary system of the country. It could replace a part of the monetary system undermining RBI’s capacity to regulate the flow of money in the system,” RBI officials said.
- “The RBI has said that crypto should be banned to the parliamentary committee last year. The RBI is talking about the dangers of dollarization and banning crypto with regard to its use case as a currency or legal tender not necessarily as an asset class,” said the source in the parliamentary committee on finance.
- Earlier this month, CoinDesk reported on how the parliamentary committee on finance had “chided” representatives of India’s crypto industry for overstating the importance of crypto without addressing challenges such as using crypto to fund terrorism and for money laundering.
Discussing the impacts of cryptocurrency, the RBI officials said it will also have a negative impact on the banking system as these being attractive assets people may invest their hard-earned savings in these currencies which may result in banks having lesser resources to lend.
In Union Budget presented earlier this year, Finance Minister Nirmala Sitharaman introduced a tax on trading in cryptocurrencies and related assets like non-fungible tokens (NFTs) at a flat 30 per cent and one per cent of tax will be deducted at source (TDS) when any such transaction takes place.
There are an estimated 15 million to 20 million crypto investors in India, with total crypto holdings of around USD 5.34 billion. This is approximately 1.4% of total population of India.