Do not ignore Shaktikanta Das’ repeated warnings on crypto - here is why

RBI has serious concerns as “far deeper” issues are involved in cryptocurrency.

Everyone listens to the Reserve Bank of India (RBI) governor—banks, investors and also the government. That’s because the RBI governor is the face of the Central bank and his comments are reflective of its larger thought process. In this context, the current governor Shaktikanta Das’ recent comments, rather warnings, on cryptocurrencies warrant a closer look. At a conference on Tuesday, Das, once again spoke on the issue.

The former finance secretary repeated that the Central bank has serious concerns as “far deeper” issues are involved in cryptocurrency. “When the Central bank says we have serious concerns after due internal deliberations, there are far deeper issues involved,” said Das at the SBI Banking and Economics Conclave on November 16.

Das added that he was yet to see any serious discussions on cryptocurrency. Responding to the argument that crypto heralds a new technology, Das said the blockchain tech it is based on is 10 years old and that it can grow even without cryptocurrencies. The urgency to introduce the cryptocurrency bill at the earliest comes in the light of what many in the government see as unchecked growth of an unregulated sector and can be gauged from the multiple meetings being held, including one chaired by Prime Minister Narendra Modi.

Das’ remarks come amid reports that the government is likely to table a cryptocurrency bill in the winter session of Parliament, which is likely to be held at the end of the month.

The Central bank’s view on crypto is critical as the government cannot ignore the strong warnings from the guardian of the financial system on what they see as an issue of major concern to macro financial stability. In his short response at the SBI conclave, Das also refuted the claims on the size of the crypto market in India, saying the numbers look exaggerated, a point the governor had made earlier as well. Many of these accounts are small-ticket investments in the range of Rs 500 to Rs 1,000, Das said.

The repeated warnings from Mint Road come at a time when the crypto lobby is on a nationwide campaign to attract fresh investors into the virtual currency market. There are even newspaper advertisements offering crypto trading training to retail investors. The RBI had to clarify on an April 2018 circular that imposed restrictions on crypto after the Supreme Court struck it down in 2020. But banks have adopted a highly cautious approach on cryptocurrency taking cues from the Central bank’s messaging.

Das’ latest comments suggest that there is absolutely no change in the thinking within the Central bank’s top brass about cryptocurrencies, whether as an investment asset or medium of exchange. With the RBI strongly against the idea, will the government give a go-ahead to private virtual currencies in India? It is unlikely. On November 15, new agency PTI reported, citing sources, that the proposed bill will focus on investor protection as cryptocurrencies come under the complex asset category.

There have been many cases in India over the last few years where retail investors have lost money investing in complex, riskier and often unregulated instruments and institutions. The examples include significant retail investments in unregulated chit funds, poorly run cooperative banks and private financial institutions. Such events should not happen in India’s unregulated cryptocurrency market too, is the thinking.

Till now, both the government and RBI have signalled abundant caution. Das’ repeated warnings suggest what could be in store for cryptocurrency in India and offers important insights to those who want to invest in such instruments.