Cryptocurrencies could lead to the dollarization of the Indian economy

The Reserve Bank of India (RBI), while discussing the impact of cryptocurrencies on the country’s economy, said they could lead it to dollarization as well as have a negative impact on the banking system.

At a parliamentary Finance Committee briefing chaired by former Indian Minister of State for Finance Jayant Sinha, RBI Governor Shaktikanta Das expressed his concerns about the adoption of cryptocurrencies. He said they pose problems for the country’s financial stability.

“It seriously undermines the RBI’s ability to control monetary policy and regulate the country’s monetary policy,” Shaktikanta Das said.

The RBI chief fears that cryptocurrencies could become a medium of exchange and replace the national currency in financial transactions both at home and abroad. Das was supported by his colleagues, saying that in addition to the possible use of cryptocurrencies to finance terrorism, money laundering and drug trafficking, cryptocurrencies pose a major threat to the stability of the financial system.

“Almost all cryptocurrencies are dollar-denominated and issued by foreign individuals. This could eventually lead to the dollarization of parts of our economy, which is against the sovereign interests of the country,” RBI officials said.

According to various estimates, there are between 15 and 20 million cryptocurrency investors in India, with total crypto assets of about $5.34 billion. So when discussing the limits of cryptocurrencies’ possible impact at a briefing, RBI officials said that the massive use of crypto assets would inevitably cause a drain on funds and reduce the liquidity of the banking sector.

Brian Armstrong, CEO of U.S. crypto exchange Coinbase, recently accused RBI of interfering with the Central Bank’s ability to provide payment services to Indian users.