RBI Governor bats for crypto ban, says it could cause serious financial instability

The Reserve Bank of India Governor Shaktikanta Das drew a line between the use of technology for enhancing businesses and the speculation in anonymous cryptos which could potentially destabilise the financial systems as the legislation for the most important financial sector innovation of the century enters the last phase.

"The technology (blockchain) is more than 10 years old, it did not come yesterday. The technology will grow and can grow without cryptos,'' said Governor Das while speaking at a conclave organised by the State Bank if India. "The Reserve Bank of India as the central bank of this country which is entrusted with the responsibility of maintaining financial stability, after due internal deliberations says that there are serious concerns over macroeconomic and financial stability. There are deeper issues which need much deeper discussion.''

ET reported in its edition on November 16 that the standing committee on finance which heard expert views on virtual currencies, came to an understanding that as Cryto cannot be stopped, proper mechanisms should be put in place to regulate it.


Das also cautioned lending institutions from going overboard in their dealings with big tech entities and mandated them to have ‘sufficient safeguards’ in their business contracts with such firms.

“Sufficient safeguards in contracts with fintech and bigtech entities should also be ensured,” Das said. “It must be recognised that the risks ultimately lie in the books of banks and NBFCs and hence the collaboration should be appropriately strategised.”

Das added that while banks were free to choose collaborative business model with fintech entities basis their commercial decisions, it should necessarily meet all regulatory requirements.

Commenting on the economic turnaround Das said that the festival fervour, pent-up demand, and numerous high-frequency indicators were suggesting that economic recovery is taking hold.

Das also hinted that several data indicators were reflecting a return in consumption demand.

“There are signs that consumption demand triggered by the festive season is making a strong comeback,” the governor said. “This would encourage firms to expand capacity and boost employment and investment amidst congenial financial conditions. The recent cut in excise duty on petrol and diesel by the Central Government and in value-added tax (VAT) by several State Governments will augment purchasing power of people, which in turn, will create space for additional consumption.”

Das added that with economy looking up and corporates sitting on stronger balance sheets, are well placed to make new investments in emerging areas.

“As demand recovers, I am sanguine about corporate sector playing a major role in turning the investment cycle that will facilitate absorption of surplus liquidity for productive investment,” he said.

Das also asked banks to be investment ready when the capex cycle picks up.

“It is incumbent upon a competitive and efficient financial system to identify high productive sectors and reallocate resources to harness the growth opportunities,” he said. “Banks, in particular, should be investment ready when the investment cycle picks up.”