Reserve Bank of India red-flags cryptocurrency risks in board meet

Officials say introduction of CBDCs will obviate need for private cryptos

The Reserve Bank of India (RBI) on Friday apprised the board members about its reservations around private cryptocurrencies while updating the progress on its yet-to-be launched Central Bank Digital Currency (CBDC).

In the 592nd meeting of RBI’s board of directors at Lucknow, senior officials, including Governor Shaktikanta Das, who also headed the board, discussed a host of issues, including the CBDC. Cryptocurrencies, according to a source, was not part of the agenda, but one board member wanted to know why the central bank wanted to ban private cryptocurrencies.

Currently, there is no regulation or any ban on the use of cryptocurrencies in the country. A parliamentary panel had in November discussed the pros and cons of crypto finance with stakeholders, and several members were in favour of regulating crypto currency exchanges rather than imposing an outright ban on crypto currencies.

The RBI officials, according to the source, apprised the board member about the macroeconomic instability such cryptocurrencies could cause, and how the fluctuations of prices of such currencies make them unsuitable for means of exchanges. 

Also, such cryptocurrencies are not controlled by any central bank and, therefore, can cause financial instability. 

RBI officials said the introduction of CBDCs would obviate the need for private cryptocurrencies, but given the financial instability that they could cause it is better to ban such currencies in India. The source said the RBI officials repeated the same points they had told the government while opposing private cryptocurrencies in India.

The RBI apprised the board of the progress on the wholesale and retail CBDC. Repeating the same concerns expressed during the December 8 policy press conference, the RBI said it would first ensure various safety and security aspects of the retail CBDC before it is launched for wide usage.

The board reviewed the current domestic and global economic situation, evolving challenges and remedial measures, an RBI statement said.

“The board also reviewed RBI’s income statement for the half year ended September 30. The board discussed various areas of operations of the Reserve Bank including the functioning of the local boards, activities of select central office departments, and the draft report on trend and progress of banking in India, 2020-21.”

Apart from governor Das, deputy governors Mahesh Kumar Jain, Michael Debabrata Patra, M. Rajeshwar Rao, T. Rabi Sankar, and other directors of the central board — Satish K. Marathe, S. Gurumurthy, Revathy Iyer, and Sachin Chaturvedi — attended the meeting. Debasish Panda, secretary, department of financial services, also attended the meeting, the statement said.

The government had listed the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 for tabling and passage in the ongoing winter session of Parliament. But there are indications that it is unlikely to bring a Bill this time as well. The Bill was first listed to be introduced in the last Budget session.