T Rabi Sankar, who took over as the Deputy Governor of the Reserve Bank of India in May, has called for an outright ban on cryptocurrencies.
"Banning cryptocurrency is perhaps the most advisable choice open to India," Sankar said during his keynote address at Indian Banks' Association (IBA's) Annual Banking Technology Conference & Awards on February 14.
"We have examined arguments by those advocating cryptos should be regulated and found that none of them stand up to basic scrutiny," he said.
Sankar said crypto-technology was underpinned by a philosophy to evade government controls, and have been specifically developed to bypass regulated financial systems--especially Know-Your-Customer regime and AML/CFT regulations (anti-money laundering and counter terrorism financing).
"These should be reasons enough to treat them with caution," he said.
The RBI deputy governor said cryptocurrencies have no underlying cash flows, no intrinsic value, and are not amenable to definition as a currency, asset, or commodity.
He likened cryptocurrencies to "ponzi schemes, and may even be worse".
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Cryptocurrencies can and, if allowed, most likely will "wreck the currency system, the monetary authority, the banking system, and in general the govenment's ability to control the economy," Sankar said.
He added that crypto messaging does not appear to be directed at the rational or sensible.
"It would serve us well if understanding of cryptos goes beyond the hype and gets rooted in reason, pragmatism," he said.
After the monetary policy meeting earlier in February, RBI Governor Shaktikanta Das had also warned investors to keep in mind that they are investing in volatile assets at their own risk. "And these cryptocurrencies have no underlying (value) -- not even a tulip," he had said.
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"Private cryptocurrency is a huge threat to macro-economic stability and financial stability... investors should keep this in mind that they are investing at their own risk," Das said during a news conference following the monetary policy meeting.
Das was perhaps referring to the Dutch tulip bubble, or the 'tulip mania'. The tulip bubble was one of the biggest bubbles seen in history. Between November 1636 and February 1637, prices of tulip flowers rose by over 20 times. When the bubble collapsed, prices of tulips fell by over 99 percent by some estimates. It was perhaps one of the first recorded instances of an asset price bubble.