The next financial crisis will be caused by private cryptocurrencies, if these assets are allowed to grow, India’s central bank chief warned on Wednesday.
“Crypto-currencies have… enormous inherent risks to our macroeconomic and financial stability,” Shaktikanta Das, governor of the Reserve Bank of India, said at an event. He pointed to the recent collapse of FTX as an example.
Das said his main concern is that cryptocurrencies have no underlying value, calling them “speculative” and adding that he thinks they should be banned.
“It is [private cryptocurrency trade] it is a one hundred percent speculative activity, and I still hold the view that it should be banned… because, if it is allowed to grow, if you try to regulate it and let it grow, please mark my words, the next financial crisis will come from crypto -private coins,” said Das.
Private cryptocurrencies refer to digital currencies such as bitcoin.
Das’ comments come as the central bank pushes to introduce its own digital version of the Indian rupee. The Reserve Bank of India started a pilot program for the digital rupee on December 1 for retail use in selected cities. Certain users can transact using the digital rupee through apps and mobile wallets.
The digital rupee is a type of central bank digital currency (CBDC). Many central banks around the world are looking to issue digital versions of their own currency.
Das said that CBDCs can speed up international money transfers and reduce the need for logistics, such as printing notes.
China’s central bank is at the forefront globally in CBDC development. Beijing has been testing the use of its digital yuan in the real world since late 2020, and will extend its availability to more users this year.
This year, digital currency regulation has been put more in the spotlight following a $1.3 trillion crash in the cryptocurrency market value and the high-profile collapse of the FTX exchange.
China has effectively banned cryptocurrency trading.
The Indian government is working on cryptocurrency legislation that could ban some activity around digital currencies, while creating a legal framework for the central bank’s digital currency.
Central banks have often said that cryptocurrencies did not pose a major risk to the economy, when they represented a much smaller asset class. But a growing number of voices warn about the potential macroeconomic impact, particularly if cryptocurrencies are not regulated.
Jon Cunliffe, the Bank of England’s deputy governor for financial stability, said in July that cryptocurrencies may not be “integrated enough” into the financial system to be an “immediate systemic risk.” He noted that he thinks the boundaries between the crypto world and the traditional financial system “will become increasingly blurred.”
The US Treasury Department said in October that “crypto-asset activities may pose risks to the stability of the US financial system” and emphasized the need for regulation.