The Reserve Bank of India (RBI) has said it is concerned that cryptocurrencies will impact financial stability in the economy, ahead of the government’s plans to introduce a law to ban private cryptocurrencies such as bitcoin.
RBI has conveyed these “major concerns” to the government, Governor Shaktikanta Das said in an interview with CNBC TV-18 on Wednesday.
The views of the monetary authority, which has been fundamentally opposed to cryptocurrencies, are significant as the government is preparing to draft laws to ban this form of assets and instead create a framework for an official digital currency to be issued by the central bank.
Das said the RBI is working on procedural issues to launch its digital currency in the country soon, though a date has not been finalised yet. “While we cannot guess the date of its launch, it is receiving our full attention,” he said.
In April 2018, the central bank ordered financial institutions to cut all ties with individuals or businesses dealing in virtual currency such as bitcoin within three months. The diktat was overturned by the Supreme Court in March 2020.
The court allowed banks to handle cryptocurrency transactions from exchanges and traders. Cryptocurrency transactions have since thrived in India, joining the recent worldwide boom.
If India bans cryptocurrencies, it would be the first major economy to do so. Governments around the world have been looking into ways to regulate cryptocurrencies but
The RBI is not opposed to the blockchain framework, on which cryptocurrencies such as bitcoin are traded. Blockchain technology is different and its benefits need to be exploited, Das said.
Das that the central bank will not put the breaks on liquidity and it has several "known and unknown" tools to ensure ample liquidity is available.
"We will not prematurely pull out liquidity to stifle growth. The Central Bank has many known and unknown tools to deal with liquidity situations.
RBI will ensure the availability of ample liquidity," Das told CNBC-TV18.
The RBI Governor said that the COVID situation was managed reasonably well and the market should take the signal from the RBI and must trust it.
"Our forward guidance has been much more explicit than ever before. There are some subtle messages on liquidity that markets should read. The signal was sufficiently clear in the February policy," stated the Governor.
The RBI Monetary Policy Committee (MPC) had kept the repo rate unchanged in the sixth and last bi-monthly monetary policy meeting for the financial year 2020-21. The repo rate stands at 4 percent and the reverse repo rate has at 3.35 percent.
"The messages from central banks are always a mix of words and subtle signals. At the moment, we are okay with the level of liquidity. All the instruments are on the table; if required we will use new instruments."