If allowed to grow, next financial crisis will come from private cryptos, says Shaktikanta Das

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Reserve Bank of India (RBI) Governor Shaktikanta Das on December 21 said unchecked growth of private cryptocurrencies could lead to a financial crisis.

"I still hold the view that it should be prohibited because if it is allowed to grow… then the next financial crisis will come from private crypto currencies," Das said at the BFSI Insight Summit 2022 hosted by Business Standard on Wednesday.

Private cryptocurrencies have certain inherent risks to  the economy’s financial stability, he noted.

The RBI has always been warning against cryptocurrencies, highlighting their risks. "The private cryptocurrencies owe their origin to bypass the system, to break the system. They don't believe in the central bank's digital currency, they don't believe in regulated financial world." Das said.

He also pointed out the recent fall of cryptocurrency exchange FTX in early November following a report by CoinDesk highlighting potential leverage and solvency concerns involving trading firm Alameda Research.

"After the FTX episode, we don't need to say anything more on crypto," Das said. Total value of cryptos has come down to $140 billion, nearly $40 billion value has been wiped out.

Last month, the RBI launched the Central bank Digital Currency (CBDC) and started the pilot for the retail digital Rupee (e-₹ R) on December 1. The central bank has identified eight banks for the project which will take place in two phases.

The first phase will begin with four banks — the State Bank of India (SBI), ICICI Bank, Yes Bank, and IDFC First Bank —across four cities: Mumbai, Delhi, Bengaluru, and Bhubaneswar.

Earlier this year, the supreme court has asked the Centre whether dealing with cryptocurrencies like bitcoin is legal in India.

Later on in September,  the Supreme Court said it cannot stop the government from bringing a legislation in Parliament on crypto currencies and dismissed a plea challenging constitution of an inter-ministerial committee to make recommendations to the Centre on virtual currencies.