Cryptocurrencies driven by speculative motives, retail investors should be careful: RBI Bulletin

Cryptocurrency

Cryptocurrencies are driven by speculative motives and retail investors need to be more careful, the Reserve Bank of India (RBI) has said, as it continues to be sceptical of private digital currencies which it sees as a risk to the financial system.

“Our findings suggest that the interest in cryptocurrencies are driven by speculative motives rather than a means of payment for real economic transactions. As the crypto ecosystem lacks accountability and stability and is marked by regulatory ambiguity, retail investors need to be more cautious,” the central bank said in its bulletin released on May 21.

The RBI Bulletin is a monthly publication that offers insights into the developments in domestic and global economies but doesn’t represent the views of the central bank.

Cryptocurrency is a digital asset designed to be used on the internet. The name originates from the fact that all of its transactions are highly encrypted, making the exchanges secure.

It is decentralised, unlike traditional currencies, which are managed and controlled by a central authority. A cryptocurrency is finite in number and at times equated to precious metals like gold and silver.

The RBI has for long maintained that it has no underlying value. “Cryptocurrencies have no underlying (value), not even a tulip,” RBI governor Shaktikanta Das once famously said in a reference to the tulip mania that had gripped Holland. Prices of tulips bulb that were recently introduced in the country began to surge in 1634 and dramatically collapsed three years later.

Speaking at the annual gathering in Davos in January this year, Das again said, “Cryptocurrency is highly speculative and country like India should be very careful.”

Speaking at Moneycontrol’s Startup Conclave on July 7, RBI deputy governor T Rabi Sanka, said: “People trading crypto is not the concern but the unbacked cryptocurrencies and the product itself alongside its backers is the problem.”

Shankar also highlighted that stablecoins pegged to other currencies in emerging market economies posed several threats.