A senior Indian central bank official compared cryptocurrency to a ‘Ponzi scheme’ and suggested an outright ban in his most scathing criticism just weeks after the government proposed taxing the digital asset virtual and paved the way for its recognition as legal tender in the second world. – the largest Internet market.
T. Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), told a banking conference that cryptocurrencies were “specifically developed to circumvent the regulated financial system” and are not backed by any flows underlying cash.
“We have also seen that cryptocurrencies do not lend themselves to being defined as money, 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.
Sankar’s remarks come at a time when the Indian government has sent signals that it is moving towards recognizing the digital virtual asset as legal tender. The country’s finance minister, Nirmala Sitharaman, proposed taxing revenue generated from the transfer of cryptocurrencies and NFTs in the federal budget earlier this month.
The sale of cryptocurrencies and NFTs has made rapid inroads in India over the past year despite regulatory uncertainty. The world’s second-largest internet market has seen the second-highest adoption rate for cryptocurrency investments, according to analysis by research firm Chainalysis.
“The scale and frequency of these transactions have made it imperative to put in place a specific tax regime,” she said in her budget speech.
The Indian central bank has so far been very cautious about cryptocurrencies. In 2018, it banned financial firms from dealing with cryptocurrency. The ban was overturned by the Supreme Court of India two years later, but most banks continued to follow the direction of the RBI.
Sitharaman said on Monday that New Delhi and the RBI were holding talks to formulate rules and that the two were “on board”.
Sankar’s speech made it clear that the RBI has not changed its long-held position. “As a store of value, cryptocurrencies like bitcoin have yielded impressive returns so far, much like tulips in the 17th century Netherlands. Cryptocurrencies are very much like a speculative or gambling contract operating like a Ponzi scheme. In fact, it has been argued that the original scheme devised by Charles Ponzi in 1920 is better than cryptocurrencies from a social point of view,” he said.
Cryptocurrencies can “destroy” the monetary system, the monetary authority, the banking system and in general the government’s ability to control the economy, he warned.
“They threaten a country’s financial sovereignty and make it vulnerable to strategic manipulation by private companies creating these currencies or governments that control them. All of these factors lead to the conclusion that banning cryptocurrency is can -be the smartest choice open to India,” he said. “We have reviewed the arguments made by those advocating that cryptocurrencies should be regulated and found that none of them does not stand up to basic scrutiny.”