RBI: Cryptocurrencies could lead to dollarization of the Indian economy

The Reserve Bank of India (RBI), during a discussion of the impact of cryptocurrencies on the country’s economy, said that they could lead it to dollarization, as well as have a negative impact on the banking system.

At a briefing by the Parliamentary Finance Committee, chaired by former Indian Minister of State for Finance Jayant Sinha, RBI Governor Shaktikanta Das expressed their concerns about the adoption of cryptocurrencies. According to him, they create problems for the financial stability of the country.

“This seriously undermines the ability of the RBI to control monetary policy and regulate the country’s foreign exchange policy,” Shaktikanta Das said.

The head of the RBI fears that cryptocurrencies can become a medium of exchange and replace the national currency in financial transactions both domestically and abroad. Das was supported by his colleagues, saying that in addition to the possible use of cryptocurrencies for terrorist financing, money laundering and drug trafficking, cryptocurrencies pose a big threat to the stability of the financial system.

“Almost all cryptocurrencies are denominated in dollars and issued by foreign individuals. This could eventually lead to the dollarization of part of our economy, which is contrary to the sovereign interests of the country,” RBI officials said.

According to various estimates, in India there are from 15 to 20 million cryptocurrency investors with a total volume of crypto assets of about $5.34 billion. Therefore, discussing the boundaries of the possible influence of cryptocurrencies at the briefing, RBI representatives said that the massive use of crypto assets will inevitably cause an outflow of funds and reduce the level of liquidity in the banking sector.

Coinbase CEO Brian Armstrong recently accused the RBI of interfering with the exchange in providing payment services to Indian users.