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RBI worried over high risk cryptocurrencies pose to financial stability

RBI worried over high risk cryptocurrencies pose to financial stability

The Reserve Bank of India (RBI) has a major concern over cryptocurrencies as they can adversely impact the country’s financial stability, RBI Governor Shaktikanta Das said in an interview to a TV news channel.

He said these “major concerns” have been conveyed to the government.

The government plans to introduce a Bill to ban private cryptocurrencies such as bitcoin, according to an agenda listed for discussion in the current session of the Lok Sabha. 

A government committee had in 2019 recommended banning all private cryptocurrencies, with a jail term of up to 10 years and heavy fines for anyone dealing in digital currencies since they pose a high risk to the country’s financial stability are they lack transparency and are very volatile.   

The RBI had banned banks and other regulated entities from supporting crypto transactions in 2018 after digital currencies were used for fraud. But the Supreme Court had reduced the efficacy of the curbs last year in response to a petition by cryptocurrency exchanges and allowed it for limited use.

The RBI has also been warning people not to go in for cryptocurrencies as they are not legal tender like currency notes. These cryptocurrencies are being used by speculators around the world and have seen very wide fluctuations in their value often resulting in huge losses to those who have bought them.

However, while cryptocurrencies are not accepted as legal tender in India there has been some confusion on whether it is legal to hold them as there was no law on the subject.

The new legislation would lead to a formal law making even the holding of cryptocurrencies a punishable offence as they pose a high risk to the country’s financial stability.

The legislation seeks “to prohibit all private cryptocurrencies in India, The parliamentary panel has, however, asked the government to “consider” the launch of an official government-backed digital currency in India, to function like bank notes, through the Reserve Bank of India.

Meanwhile, the RBI  is exploring whether there is a need to issue a digital version of the rupee in the country. “Private digital currencies have gained popularity in recent years," the central bank had said in a booklet on payment systems in India. “In India, the regulators and governments have been sceptical about these currencies and are apprehensive about the associated risks. Nevertheless, RBI is exploring the possibility as to whether there is a need for a digital version of fiat currency and, in case there is, how to operationalize it," it had said.

What Warren Buffet thinks of Bitcoin 

Interestingly, among the rich and famous, while Bitcoin has a supporter in Elon Musk it is very staunchly opposed by Warren Buffet known as the Oracle of Omaha for being the most successful investor of all times. 

Buffett believes that Bitcoin has no underlying value and has referred to it as “rat poison squared” and has said he won’t ever buy the cryptocurrency. “I don’t have any cryptocurrency and I never will,” Buffett had said on CNBC. As a value investor, Buffett invests in companies that are undervalued, produce stable and recurring cash flow and have the ability to increase in book value. To Buffett, Bitcoin doesn't produce earnings or dividends.