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Ex-RBI Governor Explains Indian Central Bank’s Concerns with Crypto

source-logo  cryptoknowmics.com 24 September 2021 13:34, UTC

The former Governor of India’s Central Bank, Dr. D. Subbarao, has said in a recent interview with ETMarkets.com that financial institution’s concerns over cryptocurrencies like Bitcoin are threefold.

Ex-RBI Governor Is Concerned with Cryptocurrencies

In an interview with ETMarkets.com, the former Governor of the Reserve Bank of India (RBI), Dr. D. Subbarao, said that virtual currencies if gains traction could be a threat to monetary stability:
“It is quite possible that domestic price formation could be set in that virtual currency.”

According to him, if regulated financial institutions will be exposed to a volatile cryptocurrency, then there could be financial instability. He believes such threats are particularly large from those digital currencies that don't have an intrinsic value and are just backed by algorithms like Bitcoin or Ethereum.

At the same time, such currencies could become a conduit for capital flight, especially in a country like India, where there is still no full convertibility of capital.

To combat this, Subbarao urges central banks to create their own central bank digital currencies (CBDCs) while ensuring they are not left behind in a world where CBDCs might become very ubiquitous.

CBDCs could also help the central bank reduce the high costs it bears in printing and maintaining currency in circulation. However, Subbarao believes that a CBDC must not be interest-bearing as that would pose an existential threat to the banking system.

India's Younger Popular Investing in Crypto

In the meantime, in a country like India where payment systems have already become very popular and virtual wallets are growing every minute, Subbarao sees little incentive for individuals to move away from private cryptocurrencies.

Notably, India’s younger demographics of teenagers are fuelling the country’s surge in crypto investments, which stood at nearly $6.6 billion in May from just $923 million a year earlier. While crypto exchanges do not allow trading for investors younger than 18-year-old, many Indian teenagers are defying the rules by using their parents’ credentials.

cryptoknowmics.com