The Reserve Bank of India’s head on Wednesday warned that private cryptocurrencies can cause the next financial crisis if these assets are allowed to grow. While speaking at the Business Standard BFSI Insight Summit, RBI governor Shaktikanta Das highlighted the recent collapse of FTX as an example and added that cryptocurrencies have no “underline” value.
The recent FTX has sent shockwaves through the already frail crypto world, which saw a $1.3 trillion crash in the value of the cryptocurrency market. The federal prosecutors are referring to it as one of the “biggest financial frauds in US history.”
“Cryptocurrency has certain huge inherent risks for our macroeconomic and financial stability, and we have been pointing it out. After looking at the latest episode of FTX. I don’t think so we need to say anymore,” the RBI chief said. “We firmly believe that cryptocurrencies have no underlying value and have a huge inherent risk for our macroeconomic and financial stability,” he further added.
Das said that cryptocurrency trade is completely speculative activity, suggesting that it should be banned. “If it is allowed to grow, if you try to regulate it and allow it to grow, please mark my words, the next financial crisis will come from private cryptocurrencies,” he said. He further stated that private cryptocurrencies’ valuation has shrunk from USD 190 billion to USD 140 billion and there is no underlying value for the market-determined price.
Notably, the RBI chief’s strong statements regarding cryptocurrencies came at a time when the central bank recently introduced its own digital version of the Indian rupee. The RBI began a pilot program for the country’s first official cryptocurrency, the digital rupee on December 1, for retail use in four cities. Users will be able to transact the e-rupee through a digital wallet offered by the participating banks and stored on smartphones. The transactions can be both person-to-person and person-to-merchant, using QR codes displayed at merchant locations.
The digital rupee is a type of central bank digital currency (CBDC), representing legal tender. RBI has partnered with eight banks for the phase-wise roll-out of this pilot.
According to a recent report by blockchain risk monitoring company Solidus Labs, more than 350 fraudulent cryptocurrency tokens were created daily in 2022. When compared to 2021, “That’s a 41% increase from the nearly 83,400 scam tokens that Solidus detected in 2021 says, Solidus’ 2022 “Rug Pull Report” report adding that millions of investors were defrauded. A rug pull is a basically a crypto exit scam wherein developers create a token and inflate its price before extracting all the value from the project, abandoning it as the token price plummets to zero. As per the report, since September 2020, nearly 2 million investors have lost money to these scams.