Strongly recommending for a ban on private virtual currencies in India, Reserve Bank Deputy Governor T Rabi Sankar on Monday said cryptocurrencies are very much like “a speculative or gambling contract working like a Ponzi scheme”.
“More substantially, they can (and if allowed most likely will) wreck the currency system, the monetary authority, the banking system, and in general Government’s ability to control the economy,” Sankar said. “They threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates creating these currencies or Governments that control them,” he said at an IBA meet. “They are akin to Ponzi schemes, and may even be worse,” Sankar said. “From what we have seen so far, there does not appear to be any case to allow cryptocurrencies to be legitimized in India.” He said increased acceptance of cryptocurrencies would result in effective ‘Dollarization’ of our economy. “Dollarization, it is well understood, would undermine the ability of authorities to control money supply or interest rates, as monetary policy would not have any impact on the non-Rupee currencies or payment instruments,” Sankar said. “When that happens, India loses not just its currency, a defining feature of its sovereignty, but its policy control of the economy. With loss of traction for monetary policy, the ability to control inflation would be materially weakened,” Sankar said.