RBI officials have raised the alarm once more over the adoption of cryptocurrencies, claiming that this will lead to the “dollarization” of India’s economy.
Economic Times reported on Monday that the Reserve Bank of India (RBI) is concerned about the impact of U.S. dollar-dominated cryptocurrencies on the Indian rupee.
As per the report, the Parliamentary Standing Committee on Finance was briefed this week by RBI officials, including governor Shaktikanta Das. They expressed skepticism about the impact of crypto on the banking sector in the article.
What is RBI saying?
An unidentified official quoted that most cryptocurrencies are dollar-denominated and issued by foreign private organizations. It could lead to the dollarization of a significant section of our economy. This is contrary to India’s national interest.
As a result, the RBI’s ability to set monetary policy and control the country’s monetary system will be severely harmed.
According to the RBI officials, people may put their hard-earned wealth into digital currencies because they are appealing assets. This, in turn, could lead to banks having fewer resources to lend.
Anti-crypto clichés such as money laundering, terror financing, and drug trafficking have been re-emphasized by RBI. RBI has shown its anti-crypto stance second time this month.
RBI soft targetting crypto exchanges
Last week, Coinbase CEO Brian Armstrong suggested that the RBI was behind Coinbase’s abrupt suspension of its United Payments Interface (UPI) in India, which was a direct result of pressure from the RBI.
Several days after launching, the Reserve Bank of India (RBI), the Indian equivalent of the U.S. Treasury, put informal pressure on them to suspend UPI. He also added that there was soft pressure behind the scenes to disable some of these payments that might be happening through UPI.
Coinbase and several other crypto exchanges have disabled the UPI mode of payment on their platforms.
Indias’ stance on digital assets
The Indian government looks to have a restrictive attitude to crypto since they announced their intention to regulate the sector in December last year.
The Indian government enforced a crypto tax of 30% on digital asset holdings(NFTs, cryptos, DeFi transactions) and transfers on April 1st.
The Budget Bill was introduced into parliament in January during the budget session of 2022–2023. In addition, traders will not be able to offset their losses against earnings. Each trading pair would be treated as a separate tax deduction, unlike it allowed for stock-related trades and other businesses.
The new crypto tax was significantly influenced by countries’ gambling and horse betting tax policies, which has the crypto community in an uproar. Essentially, this means that India’s government considers the cryptocurrency market a form of gambling.
It is anticipated that there are 15 million to 20 million cryptocurrency investors in India, and the total value of their assets is approximately $ 5.34 billion.
It is not possible to obtain any official statistics regarding the size of the cryptocurrency market in India.
Comprehensive discussions have occurred between the panel chaired by Sinha, which includes Sushil Modi, a former head of the GST council, and former Union Ministers Manish Tewari and Saugata Roy as members.
After the new legislation came into effect, trade volume on major Indian crypto exchanges dropped by 70% in the next ten days.