As millions of investors face uncertainty in global crypto meltdown, the Reserve Bank of India (RBI) Governor Shaktikanta Das said on Wednesday that the next financial crisis will come from crypto collapse if private digital coins are allowed to grow.
Addressing a group of banking sector leaders and lawmakers, Das emphasised that cryptocurrencies have no "underlying value" and pose great risks for global macroeconomic and financial stability.
"After the development of the last one year, including the latest episode surrounding FTX, I don't think we need to say anything more," Das said.
"Crypto or private cryptocurrency is a fashionable way of describing what is otherwise a 100 per cent speculative activity," he added.
After the collapse of crypto exchange FTX, US authorities have arrested its former CEO San Bankman-Fried in the Bahamas and officially charged him with defrauding equity investors.
According to the US Securities and Exchange Commission (SEC) complaint, since 2019, FTX raised more than $1.8 billion from equity investors, including approximately $1.1 billion from approximately 90 US-based investors.
The RBI last month kick-started a pilot project to launch its own digital rupee in the wholesale segment and subsequently plans to roll out another one in the retail segment within a month, with an aim to enhance financial inclusion and move towards a less cash economy with its central bank digital currency (CBDC).
The CBDCs can boost innovation in cross-border payments, making these transactions instantaneous and help overcome key challenges relating to time zone, exchange rate differences as well as legal and regulatory requirements across jurisdictions.
Additionally, the interoperability of the CBDCs presents means to mitigate cross-border and cross-currency risks and frictions while reinforcing the role of central bank money as an anchor for the payment system.
Therefore, the potential use of the CBDC in alleviating challenges in cross-border payment is one of the major motivations for exploring its issuance.
Meanwhile, the government's bill that seeks to prohibit all private cryptocurrencies in India is yet to be tabled in Parliament.