Cryptocurrencies have grown in popularity over the years and reached impressive heights as it has made their presence known in countries across the world (even as legal tender). However, it has met its match in India’s central bank, the RBI, which has remained a strong opponent and prevented cryptos from gaining a strong foothold in the Indian market. Even then, it is estimated that there are 15 million to 20 million crypto investors in the country with total crypto holdings of around $5.37 billion (nearly ₹40,000 crores).
The Union Budget 2022 only made things more difficult for cryptocurrencies to make breakthroughs in the domestic market, even though it led to speculations that cryptos have been legally recognized in India. Now, in a post-monetary policy press conference, RBI Governor Shaktikanta Das has reiterated his stance on private cryptocurrencies, saying that they were a threat to macroeconomic and financial stability and that they had lacked the underlying value of even a tulip.
“Private cryptocurrency is a huge threat to macro-economic stability and financial stability…investors should keep this in mind that they are investing at their own risk,” Das said in a news conference following a monetary policy meeting.
Why the reference to tulips? If you are unfamiliar with the tulip mania that gripped the Netherlands during the 17th century, here is a short recap. The contract prices of tulip bulbs rose to all-time highs during the period (around $750,000 at its zenith in today’s value) before collapsing a few years later. It is considered to be the first-ever recorded speculative bubble in history. The current hype regarding cryptos is likened by him, to the tulip mania.
You may remember that India’s Finance Minister Nirmala Sitharaman had presented the Union Budget 2022 earlier this month. The budget is comprised of many things, one of which is the imposition of a new tax of 30% on income from the transfer of digital assets. There will also be a TDS of 1% on transactions in the crypto world that are above a specified monetary threshold.
Additionally, gains or losses on the sale of virtual assets will not be allowed as set off against any other gains or losses, that is, it will be treated as a separate class of asset.
The RBI will also roll out a digital rupee (India’s first central bank digital currency or CBDC) using blockchain and other technologies starting 2022-23. The digital rupee is expected to boost the digital economy and will be just like the paper rupee, but virtual.
“Like how you keep the paper rupee in your wallet, the digital rupee will be kept in the device. There is no difference between the two. The only difference between Digital Rupee and cryptocurrency is that the former will be issued by the RBI. Like the rupee note, this will also be part of the liability. Cryptocurrencies are privately-created products,” said RBI Deputy Governor T Rabi Sankar.
He added that those who are investing in private cryptocurrencies should keep in mind that they are investing at their own risk.
One of the reasons behind the RBI’s opposition to cryptocurrencies is that they can be used for money laundering or financing terrorist activities. Das added that they will undermine the ability of the RBI to deal with issues of financial stability and macroeconomic stability.