Next financial crisis will come from private cryptocurrencies: RBI Guv

Reserve Bank of India governor Shaktikanta Das warned that the next financial crisis could be caused by private cryptocurrencies, stating that they have no underlying value and pose risks to macroeconomic and financial stability.

If they are allowed to grow, then “mark my words, the next financial crisis will come from private cryptocurrencies,” Das said, advocating prohibiting private cryptocurrencies.

“The developments over the past year, including the latest episode of FTX, I don’t think so we need to say anything anymore,” Das said at the Business Standard BFSI Insight Summit. “Time has proved that cryptocurrencies are worth what they are today. According to some estimates, the total value of cryptocurrencies was $180 billion, but now that value is down to $140 billion. Change in the value of the product is a function of the market. Unlike any other product, our major concern is that it does not have any underlying.”

Das stated that private cryptocurrencies owe their origin to bypassing the system to “break the system” as they don’t believe in the central bank’s currency or regulated financial world. Therefore, “…they want to bypass and beat the system”.

“I’m yet to hear any argument about what public good it serves. Still, there is no clarity over it. It’s 100% speculative activity.”

On inflation forecasting, Das said that the RBI regularly fine-tunes its forecasting models amid sudden developments.

“Primarily, our monetary policy is governed by our domestic factors. What is more important to see in the context of inflation forecasting is not whether we are getting the number right, but whether we are getting the direction right and also the speed of inflation correct,” he said.

When asked if the next Lok Sabha elections in 2024 will be a consideration in monetary policymaking, Das made it clear that monetary policymaking is only for controlling inflation and elections are not a factor.

In its December policy review, MPC raised the repo rate by 35 basis points, taking the cumulative quantum of rate hikes in 2022 to 225 basis points. Consumer Price Index inflation was at 5.88% in November, marking the first time in 2022 that the price gauge was within the RBI’s 2-6% tolerance zone. The price gauge has, however, remained above the RBI’s 4% inflation target for 38 consecutive months.

Das also spoke about the resilience of the Indian economy, highlighting that several growth indicators used by the RBI were in the “green zone”.

He, however, voiced concern about the impact that a global economic slowdown could have on India’s exports and, consequently, GDP growth.