The next financial crisis will be caused by private cryptocurrencies, if these assets are allowed to grow, the head of India’s central bank warned on Wednesday.
“Cryptocurrencies have… huge inherent risks for our macroeconomic and financial stability,” Shaktikanta Das, governor of the Reserve Bank of India, said at an event. He pointed to the recent collapse of FTX as an example.
Das said his main concern is that cryptocurrencies don’t have any underlying value, calling them “speculative” and adding that he thinks they should be banned.
“It [private cryptocurrency trade] is a hundred percent speculative activity, and I would still hold the view that it should be prohibited … because, 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,” Das said.
Private cryptocurrencies refer to digital coins such as bitcoin.
Das’ comments come as the central bank pushes to introduce its own digital version of Indian rupee. The Reserve Bank of India began a pilot program for the digital rupee on Dec. 1 for retail use in select cities. Certain users are able to transact using the digital rupee via apps and mobile wallets.
The digital rupee is a type of central bank digital currency (CBDC). Many central banks around the world are looking into issuing digital versions of their own currency.
Das said CBDCs can expedite international money transfers and reduce the need for logistics, such as printing notes.
China’s central bank is furthest ahead globally on the development of a CBDC. Beijing has been trialing use of its digital yuan in the real world since late 2020, extending its availability to more users this year.
Digital currency regulation was thrust further into the spotlight this year after a $1.3 trillion crash in the value of the cryptocurrency market and the high-profile collapse of the FTX exchange.
China has effectively banned cryptocurrency trade.
The Indian government is working on cryptocurrency legislation that could prohibit some activity around digital currencies, while creating a legal framework for the central bank’s digital currency.
Central banks often said cryptocurrencies did not pose a major risk to the economy, when they represented a much smaller asset class. But a growing number of voices warn of the potential macroeconomic impact, particularly if cryptocurrencies go unregulated.
Jon Cunliffe, the Bank of England’s deputy governor for financial stability, said in July that cryptocurrencies may not be “integrated enough” into the financial system to be an “immediate systemic risk.” He noted that he thinks the boundaries between the crypto world and the traditional financial system will “increasingly become blurred.”
The U.S. Treasury Department said in October that “crypto-asset activities could pose risks to the stability of the U.S. financial system” and emphasized the need for regulation.