RBI says private crypto threatens India’s macroeconomic stability

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The governor of the Reserve Bank of India (RBI) said that private cryptocurrencies are a major threat to the country’s overall macroeconomic stability and will undermine the central bank’s ability to maintain financial stability.

RBI governor Shaktikanta Das, warned investors on Thursday about private cryptocurrencies, saying that private cryptocurrencies lacked the underlying value of even a tulip, referring to a speculative bubble that gripped the Netherlands in the 17th Century.

“As far as private cryptocurrencies is concerned, the RBI stance is very clear,” Das said at a news conference following a monetary policy meeting. “Investors should keep this in mind that they are investing at their own risk.”

There are around 15 million-20 million crypto investors in India, with total crypto holdings of an estimated $5.34 billion. However, there is no official data on the size of the Indian crypto market.

The crypto market in India grew 641% in the year through June 2021, according to an October report from Chainalysis, an industry research firm.

The RBI plans to launch its own digital currency, the digital rupee, sometime next year. The currency will be launched under the CBDC (Central Bank Digital Currency) initiative, and will be exchangeable one-to-one with government-issued money.

“We can’t give a timeline on CBDC. But what I can say is that whatever we are doing, we are doing it very carefully and cautiously,” Ras said. “We have to keep risks like cybersecurity and counterfeiting in mind.”

According to reports, the RBI is likely to avoid using blockchain technology for its digital currency  due to the massive power consumption requirement. It may consider centralized technology models to host the digital currency.

The RBI could either offer the digital currency directly to citizens or use the indirect retail method by issuing digital currency to banks, similar to what China is doing.

Recently, India’s finance minister Nirmala Sitharaman proposed a 30% tax on virtual digital assets like Bitcoin and Ethereum. While presenting the Budget, she also said that the buyer shall be liable to a withholding tax on payments made for the purchase of such assets at the rate of 1%.

The minister said that gains or losses on the sale of virtual assets will not be allowed to be set off against any other gains or losses. – it will be treated as a separate class of asset.

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