Crypto won’t work in emerging economies like India: RBI governor

A day after a report estimated that India has close to 115 million crypto investors, the governor of the country’s central bank stated that crypto is not useful for developing economies like India.

In a recent interview, Reserve Bank of India Governor Shaktikanta Das said, “Countries like India are differently positioned than advanced economies when it comes to dollarization of the economy…”

Unintended “dollarization” of the economy

“It’s not good for our economy to happen. Therefore for emerging market economies, since all cryptos are denominated in the hard currencies mostly [the] dollars, [they] will not work in favor of countries like India. It could work in favor of the advanced economies,” Das added.

His comments are especially important in light of a recent KuCoin report showing that, in addition to the staggering 115 million existing crypto investors, the majority of Indian investors intend to increase their holdings in the near future.

Also in May, the central bank had warned a parliamentary panel that cryptocurrencies, especially stablecoins, could lead to an unintended “dollarization” of the economy.

Talks to be[In]Crypto, Vikram R Singh, founder and CEO of blockchain development company Antier Solutions said that “blockchain technology and the use of virtual currencies both have unlimited potential to strengthen economies around the world. “We further add that “implementing them on a regulated and managed way will help countries to exploit their capabilities for [the] public as well as private sector development”

Meanwhile, the central bank governor is also of the view that while supporting innovation in fintech, the RBI will also assess the types of risks present in the sector and check whether they are being handled well.

Das also told the newspaper, “I would like to believe that a large number of people would have heeded the warning signs and the concerns expressed by the Reserve Bank, and I would like to believe and anecdotally we are aware that many people did not invest in crypto or pulled out of crypto, thanks to the kind of caution and concern that came from the Reserve Bank.”

Industry players are pushing for regulations to address concerns

In the past, the country’s central bank has indicated that it is unlikely to change its negative stance on virtual digital assets (VDA) due to the financial stability concerns they raise in the economy along with the risk of money laundering.

This month, India’s Enforcement Directorate (ED) also froze bank assets belonging to troubled crypto exchange Vauld and one of the directors of WazirX operator Zanmai Lab Private Ltd. While they are being investigated for alleged money laundering.

That said, Das also questioned the intrinsic value of the entire asset class in light of the recent market downturn. He said: “The prices of something that has no underlying base will not remain high all the time. Therefore it can crash and it has crashed. Ultimately in a situation like this it is the small investor who loses money and therefore there is a big risk for the small investors as well.”

Vineet Budki, managing partner and CEO of crypto venture capital firm Cypher Capital stated that as regulations evolve globally, the current risks may be reduced, saying, “Cryptocurrencies are global and their legal status varies from one jurisdiction to another. Since we are at a very nascent stage of crypto adoption, US dollar-based stablecoins such as USDC, DAI and USDT dominate transactions and are the entry point for most users.We expect this to change as regulations against crypto become favorable and economies launch their CBDCs is to support the local ecosystem.”

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