The Reserve Bank of India (RBI) has told a parliamentary committee that cryptocurrencies could lead to the dollarization of a section of the economy. This would be against the sovereign interests of India. According to sources, top officials, including RBI Governor Shaktikanta Das, presented their views before the Parliamentary Standing Committee on Finance headed by former Minister of State for Finance Jayant Sinha. He put his apprehensions about cryptocurrencies to him. He also said that this would pose challenges to the stability of the financial system.
RBI officials said this would seriously undermine the central bank's ability to set monetary policy and regulate the country's monetary system. He said that cryptocurrencies have the potential to become a medium of exchange and can replace the rupee in financial transactions both domestically and cross-border. Central bank officials said the currency could occupy a part of the monetary system and could also undermine the RBI's ability to regulate the flow of money in the system.
Reserve Bank officials cautioned that cryptocurrencies could also be used for terror financing, money laundering, and drug trafficking and could pose a major threat to the stability of the country's financial system. He told the parliamentary committee that almost all cryptocurrencies are dollar-based and issued by foreign private institutions. In such a situation, this may lead to the dollarization of some parts of our economy, which will be against the sovereign interests of the country.
RBI officials said cryptocurrencies will also harm the banking system as being lucrative assets, people may invest their hard-earned money in them, resulting in a lack of resources for banks to lend.
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