The Reserve Bank of India on Thursday reiterated its stance on cryptocurrency and said the digital asset is a huge threat to macroeconomic and financial stability.
“Our position on cryptocurrency is very clear…Private cryptos are a huge threat to macroeconomic and financial stability, RBI governor Shaktikanta Das told reporters after the RBI monetary policy announcement.
Das said private crypto will hugely undermine RBI’s ability to deal with financial stability. He warned that cryptocurrency investors must keep in mind that they are investing at their own risk. They must also note there is no underlying for such assets, he said.
RBI governor’s remarks come days after Union Finance Minister Nirmala Sitharaman announced in her Budget 2022 speech a tax, being called the ‘crypto tax’ on gains on virtual assets. The minister said 30 percent tax will be levied on transfer of digital assets. Though the finance minister maintained that taxing an asset does not legitimise it, industry watchers believe that clarity on tax policy is the first step towards regulation.
Even as several experts say the new tax will dissuade investors, cryptocurrency exchanges reported a 20 to 50 percent surge in participation levels on the day of the announcement.
Sitharaman has said the government seeks to impose a 30 percent tax on crypto deals because people are making profits from them. "What happens outside , because there are transactions with a certain kind of profit, we decided to tax it,” she said in an exclusive interview with Network18.
RBI has remained critical of cryptocurrencies as it believes there is no intrinsic value in the digital asset. In the case of a share market, there is an underlying business but in cryptos, there is only an algorithm.
The RBI governor has said on multiple occasions flagged the concern about financial stability. The worry is that individuals may borrow either all their credit cards or as personal loans and invest in cryptocurrencies. If they go down very sharply, those banks will be faced with NPAs if they crash.
Meanwhile, the central bank will issue a digital currency dubbed 'Digital Rupee' using blockchain and other technologies starting 2022-23.
"Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy," Sitharaman said adding that "digital currency will also lead to a more efficient and cheaper currency management system."