Crypto is causing financial crisis, says India’s central bank chief

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The Indian government has long shown antipathy and opposition to cryptocurrency and Indian central bank governor Shaktikanta Das earlier said he wants crypto banned.

The reason for this antagonism is that Das believed that if crypto were allowed to thrive in a country like India, which happens to be plagued by poor financial practices, it could disrupt and hamper the traditional financial system.

Very recently, during the BFSI Insight Summit 2022, Shaktikanta Das said that the private market for digital assets can cause a potential local financial crisis. He also pointed to the recent colossal fall of FTX, the crypto exchange, as evidence of the “inherent risks” in the industry.

Das went on to say:

Unlike any other product, our primary concern with crypto is that it has no underlying (value).

As the Indian government prepares to put in place regulations for digital assets, these words from the Governor of India’s Central Bank reflect the thoughts of other central bankers and financial leaders.

They collectively believe that private digital assets have no underlying value. Moreover, it is a risk for the macroeconomic stability of the economy.

This could pose a challenge for Indian crypto users

Comments from financial executives echo the fact that this could be a tough year for millions of crypto owners who are already burdened by the global financial crisis and rising national taxes.

The Indian government has been scrutinizing the crypto industry ever since the technology ventured into the local market almost a decade ago. The reason digital assets have fallen under the radar of financial institutions may have to do with several instances of fraudulent transactions, which prompted the central bank to ban crypto in 2018.

Although India’s Supreme Court lifted the restrictions after two years of a blanket ban, the introduction of a 30% tax on profits from private crypto trading was a major setback for crypto owners. This year, the volume of crypto exchanges in India has decreased by at least 10 times compared to its previous figures.

Terrorism financing remains the biggest concern for Indian regulators

Last month, Indian Prime Minister Narendra Modi ordered tighter and stricter regulation of private digital assets to reduce terrorist financing in the economy.

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Narendra Modi mentioned that Bitcoin poses risks to young minds in the country and private virtual currency can pose a serious threat to the younger population. According to Modi, if private digital assets fall “into the wrong hands”, it could “spoil” the nation’s youth.

The Central Bank of India and the Reserve Bank of India have launched their own digital rupee based on blockchain technology this year. This was introduced in order to reduce the costs involved in business transactions through a decreasing dependence on paper money.

Bitcoin was priced at $16,800 on the 1-day chart | Source: BTCUSD on TradingView

Featured image from Unsplash, chart from TradingView.com

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