Reserve Bank of India Governor Shaktikanta Das Wednesday warned that private cryptocurrencies, if allowed to grow, would lead to the ‘next financial crisis’ and reiterated his stance to prohibit them.
Das said the cryptocurrencies have certain huge inherent risks which could pose threat to the country’s macroeconomic and financial stability.
“Our view is that it (private cryptocurrencies) should be prohibited because if it is allowed to grow, that is, if you try to regulate it and allow it to grow…please mark my words the next financial crisis will come from private cryptocurrencies,” Das said, while speaking at a banking event.
“After all the developments over the last one year, including the latest episode on the built around FTX, I don’t think we need to say anything more about our stance (on crypto currencies),” he said.
Private cryptocurrencies owe their origin to bypassing and to breaking the system, the Governor said, adding that these currencies do not believe in the central bank currency and also in the regulated financial world.
The Governor said that according to some estimates, the total value of cryptocurrencies has currently shrunk to $140 billion from $180 billion or $188 billion.
“The change in value in any so-called product is the function of the market. But unlike any other asset or product, our main concern about crypto is that it doesn’t have any underlying, whatsoever. I think the term cryptocurrency or private cryptocurrency is a fashionable way of describing what is otherwise a 100 per cent speculative activity,” Das noted.
Speaking on the economy, the Governor said despite the slowdown in global growth, the underlying economic activity in India continues to remain strong.
He said most of the 70 fast moving indicators of the economy, which the RBI monitors, are in the green zone, reflecting that they all are growing.
In its December monetary policy review, the RBI slashed the GDP forecast for fiscal 2023 to 6.8 per cent from an earlier estimate of 7 per cent. Das said the revision was done after considering the impact of the weak external factors and on the Indian economy.
The Governor said there has been a very coordinated approach between the RBI and the central government to control inflation.
Before easing to 5.88 per cent in November, the consumer price-based inflation (CPI) remained above 6 per cent, the upper band of the government mandated inflation target for RBI, for 10 months starting January 2022. Last month, the RBI had written to the government explaining the reasons for the failure to bring down inflation below the upper tolerance band of 6 per cent for three quarters in a row.
When asked whether inflation-growth dynamics will change as the country is nearing the 2024 general elections, Das said elections, including at the state level, keep on happening in the country every year, and they do have a bearing on the monetary policy making.
“Election is not a consideration so far as monetary policy making is concerned. Monetary policy will do whatever is in the best interest of the economy,” he said.
On the widening gap between credit and deposits growth, Das said it is the base effect of the previous years which is making growth in both credit and deposits look divergent. In the last two years, the growth in bank credit remained tepid but deposits had witnessed a double-digit growth. As per the latest RBI data, bank credit grew by 17.5 per cent and deposits by 9.85 per cent in the fortnight ended December 2.
“Just as the credit growth looks very high because of the low base of the previous years, the deposit growth also looks pretty low because of the base effect of the previous years,” Das said.
When asked whether the current growth in bank credit is sustainable, Das said the credit growth is reflective of the underlying fundamentals of the economy and also of the pent-up demand for credit of the last two years.
“So, considering all these factors, I think the credit growth, at the current point, is certainly far away from what you call exuberance…it is definitely very, very steady,” he added.
