‘Worse Than Ponzi Schemes’: RBI Deputy Governor Recommends Crypto Ban

Crypto is structured to evade government control with respect to financial integrity standards, he said.

Reserve Bank of India's Deputy Governor T Rabi Sankar recommended a cryptocurrency ban on Monday, 14 February, in an address at the Indian Banks Association 17th Annual Banking Technology Conference.

“Cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi Schemes, and may even be worse,” he said.

“Banning cryptocurrency is perhaps the most advisable choice open to India.”

T Rabi Sankar, Deputy Governor, RBI

These comments come hot on the heels of a press conference during which RBI Governor Shaktikanta Das said that cryptocurrencies were a big threat to the financial and macroeconomic stability of India.

Two Risks of Crypto

Sankar said that there were two major risks that come with cryptocurrencies – they are intended to be private currencies and they are structured to evade government control with respect to financial integrity standards.

“Every private currency will eventually replace the Rupee to some extent. Consequently, the role of the Rupee as a currency will be undermined. With one or more private currencies being allowed, there would be parallel currency system(s) in the country.”

T Rabi Sankar

This, he said, would lead to the ‘Dollarisation’ of the economy and India will lose its policy control of the economy. “With loss of traction for monetary policy, the ability to control inflation would be materially weakened,” he added.

Cryptocurrencies are meant to bypass established intermediation and control arrangements such as Know-Your-Customer regimes, Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) rules, which makes them particularly attractive to illegal or illegitimate transactions, said Sankar.

He also dismissed the argument that a cryptocurrency ban is unlikely to be effective, as superficial, “If cryptocurrencies are banned, the vast majority of investors who are law abiding would desist from investing. Those few elements who would continue to invest will essentially be carrying out an illegal activity. Such exceptions should reinforce the need for a ban, rather than invalidate it.”

He echoed the views of the RBI governor who had earlier said, “As far as cryptocurrencies is concerned, the RBI stance is very clear. Private cryptocurrencies are a big threat to our financial and macroeconomic stability. They will undermine RBI’s ability to deal with issues related to financial stability (sic)."