India’s Central Bank Chief Sees Crypto as Potential Disruptor of Monetary Tools

The Reserve Bank of India’s governor has questioned whether governments can accept private cryptocurrencies functioning as currency, warning that this shift could disrupt central bank control.

India’s central bank governor, Shaktikanta Das, has once again tabled his reservations about crypto, citing its potential to destabilize financial systems. Speaking at the Peterson Institute for International Economics during Macro Week 2024 on Friday, Das spoke about why the Reserve Bank of India (RBI) views crypto with a strong sense of caution. The banker began by revisiting the origin of cryptocurrencies. He noted that they were created to bypass conventional financial systems. 

“The fundamental question,” he posited, is whether authorities or governments are comfortable with privately issued cryptocurrencies possessing all the features of currency. He argued that issuing currency is traditionally a sovereign function. Allowing cryptocurrencies to flourish could remove parts of the economy from central bank control. He warned that this shift could throw the economy into monetary instability.

Das went on to explain how crypto poses a threat in particular, potentially undercutting the central bank’s capability to regulate the money supply—oxygen to be turned on or off for tamping down inflation or heating up an economic cycle. If the central bank loses control of the money supply in the economy… how does the bank check liquidity available in the system?” he asked, demonstrating the mess financial and monetary systems would be if cryptocurrencies became prevalent.

India Joins Crypto but Cautiously: Imposes 30% Tax on Income

India has taken a more conservative and regulated approach to digital currencies. It first banned banks from dealing in these assets. Later, the ban was lifted; however, even then, the country maintained its traditional and conservative stance on crypto.

The Finance Minister, Ms. Nirmala Sitharaman, has brought crypto gains under 30% taxation. This tax, with no deductions allowed, reflects a regulatory shift. It suggests that while cryptocurrencies are recognized in India’s financial framework, they remain under strict oversight.

Governor Das has frequently questioned the intrinsic value of digital assets, suggesting they could be part of a speculative bubble. International developments, like the US SEC’s approval of Bitcoin ETFs, have not altered his view on cryptocurrencies.

However, Das has not completely abandoned cryptocurrencies. The RBI claims to be actively trying to build a central bank digital currency, or digital rupee, to maintain monetary policy integrity. He has also called for international coordination because of the cross-border nature of cryptocurrencies.

From Fiscal Policies to Digital Currency: Shaktikanta Das’s Journey

Shaktikanta Das is the 25th Governor of the Reserve Bank of India, who has played an important role in shaping the economic and financial policies of the country. He was appointed to the position in December 2018. Das had ample experience from his earlier stints in the government, wherein he held several prominent positions like that of Economic Affairs Secretary and Revenue Secretary in the Ministry of Finance.

Resident expert on fiscal policy, Das provided the operational lead for India’s demonetization in 2016—a bold strike at breaking the backbone of black money and counterfeit currency. He also oversaw the introduction of the Goods and Services Tax, or GST, a far-reaching tax reform designed to unify India’s indirect tax system.

Das did his master’s in history from St. Stephen’s College, University of Delhi. He led the Reserve Bank of India through varying economic volatility, including the COVID-19 pandemic, during which he introduced measures to stabilize the economy. Das’s concerns regarding cryptocurrency are well know and instead he backs India’s digital rupee, which is one version of the CBDCs in the making at the state-run central bank.