India’s Central Bank on a crusade against cryptos

As the adoption of cryptocurrencies continues to grow in India, according to a study by Kucoin, the country’s authorities want to stop the growth. Indeed, a senior official at India’s central bank has warned his countrymen against using cryptos. He believes that the crypto market could collapse at any time and ruin investors.

Cryptos, the evil for the Central Bank of India

Reserve Bank of India (RBI) Governor Shaktikanta Das has warned against investing in cryptocurrency during an interview with the media outlet Times Now. Like many of his central banker peers, he believes that cryptocurrencies are not based on anything.

For him, it is a market that could collapse at any time and lead small investors to loss.

It’s something (ed. note: crypto) that has no underlying. The prices won’t stay high all the time so it can crash, and it has crashed… it’s the small investors that are losing money. It’s a big risk for them.

Shaktikanta Das, Governor of the Reserve Bank of India

To support his remarks, Shaktikanta Das gave the example of the recent collapse of the Terra (LUNA) and its stablecoin, the UST. However, he boasted of the effectiveness of warnings issued by his institution.

We warned about crypto and look what happened to the market.

Shaktikanta Das, Governor of the Reserve Bank of India

He was also pleased that “thanks to the warnings and concerns coming from the Reserve Bank of India, people have not invested in cryptocurrency or have sort of withdrawn.”

For Shaktikanta Das, investing in cryptocurrencies is not only dangerous for investors. According to him, it is for the entire Indian economy and would be the basis of financial instability because it largely hinders “the ability of the central bank to determine monetary policy” .

This will have “a negative impact on our exchange rate, capital flows, stability of the banking sector”, he continued.

Warnings ignored by the Indians

The Indian central bank is not at its first position against the use of cryptocurrencies. It had already asked, in vain, the Indian government to formally ban the use of cryptocurrencies in the country.

A 30% tax on income from crypto investments was even introduced in the country. All these steps have proved ineffective so far.

According to a survey by the cryptocurrency exchange Kucoin, Indians are showing a growing interest in cryptos. Some of them even see bitcoin as the future of finance.

The survey also informs that by June 2022, nearly 115 million Indians were holding or had traded cryptocurrencies. This represents 15% of the country’s working population (18 to 60 years old).

Moreover, cryptocurrency adoption could continue in India. In fact, 10% of Indians plan to get into the sector during the next six months.

Is the war against cryptos lost in advance?

Since the advent of cryptocurrency, various governments and financial institutions have fought it fiercely. In many cases, government restrictions are struggling to turn people away from using crypto-currencies. They are seen as a safer way to transact and protect themselves from inflation.

The most striking and recent case is Nigeria. The country banned cryptocurrency exchange platforms and blocked the bank accounts of its users.

Then, a central bank digital currency was launched to “divert Nigerians from using cryptocurrencies.”

The Nigerian police even ordered arbitrary arrests of crypto holders in several parts of the country. However, this crackdown has had no impact on cryptocurrency adoption in the West African country.

Quite the contrary, P2P exchanges increased by 16% in 2021, reaching a volume of $400m.

The CBDC supposedly overshadowing bitcoin is only used by less than 1% of the country’s working population. According to a report by the Organization for Economic Cooperation and Development (OECD), the blockade imposed on cryptocurrency traders has had a negative impact on Nigeria’s economy.

Thus, India can learn from the experience of Nigeria and other countries. Seeking to censor the use of bitcoin in a country with such an unstable currency is a losing battle. Instead of fighting bitcoin, the country should emulate states like Iran, which, instead of cracking down on the use of cryptos, is taking advantage of it to pay for its imports without suffering the embargo imposed by the US.