India: Cryptocurrency Officially Recognized as a Pyramid
Cryptocurrencies are akin to Ponzi schemes or worse and banning them
is the most sensible option for India to avoid the threat they pose to
financial and macroeconomic stability, a deputy governor at the
Reserve Bank of India (RBI) said on Monday (
https://bit.ly/3Bv6PkH).
Monday's comments from T. Rabi Sankar followed a similarly withering
assessment of digital currencies by RBI Governor Shaktikanta Das only
days after the Indian government established a taxation framework for
cryptocurrencies.
"We have also seen that cryptocurrencies are not amenable to
definition as a currency, asset or commodity; they have no underlying
cash flows, they have no intrinsic value; that they are akin to Ponzi
schemes, and may be even be worse," Sankar said in a speech.
Crypto exchanges and investors have been arguing for regulation of
cryptocurrencies as an asset and the government's recent budget
announcement to tax gains from these has raised hopes that the they
will not be banned.
Sankar, however, dismissed the suggestion that these highly volatile
virtual coins should be regulated and instead called for an outright
ban.
"Cryptocurrencies are not currencies, or financial assets or real
assets or even digital assets. Therefore, it cannot be regulated by
any financial sector regulator. It is not possible to regulate
something that one cannot define," he said.
"All these factors lead to the conclusion that banning cryptocurrency
is perhaps the most advisable choice open to India."
Sankar said that cryptocurrencies have been developed to bypass the
regulated financial system and that he does not accept the argument
that cryptocurrencies must be permitted for blockchain technology to
thrive.
"The fact that they are anonymous, decentralised systems that operate
purely virtually makes cryptocurrencies particularly attractive to
illegal, illegitimate transactions," he said, adding that blockchain
technology can still be promoted even if private cryptocurrencies
are banned.
"It should be possible to maintain a blockchain without any native
cryptocurrency if transactions are authenticated centrally," Sankar
said.
Illicit transactions involving cryptocurrencies totalled $14 billion
(roughly Rs. 1,05,990 crore) last year, Shankar said, citing a Wall
Street Journal report based on a report by blockchain data platform
Chainalysis.
There are about 15 million to 20 million cryptocurrency investors in
India, with total holdings of about Rs. 40,000 crore, according to
industry estimates.
The RBI says the average holding continues to be small at only Rs.
1,566, which means that "wealth loss, if it is a possibility, is likely
to affect only a small fraction of these investors".
