India's Reserve Bank deputy governor calls for crypto ban

Labels digital currencies wreckers of sovereignty, worse than a Ponzi scheme


The deputy governor of the Reserve Bank of India, T Rabi Sankar, has delivered an extremely unflattering assessment of cryptocurrencies – worse than Ponzi schemes, wreckers of economies, and richly deserving of a ban within India.

Speaking at the Indian Banks' Association's 17th Annual Banking Technology Conference, Sankar argued that cryptocurrencies are poorly named, as unlike fiat currencies they "do not have an issuer, they are not an instrument of debt, nor commodities, nor do they have any intrinsic value."

He also dismissed cryptocurrencies as a financial asset, arguing that "financial assets have underlying cash flows and need to be some person's liability." Cryptocurrencies have neither cashflow and create no liability.

His argument that crypto-bucks are not commodities was based on grounds that commodities "are tangible and have utility." Sankar said cryptocurrencies meet neither criterion.

The deputy governor eventually settled on a definition of cryptocurrencies: "very much like a speculative or gambling contract working like a Ponzi scheme."

Cryptos threaten financial sovereignty and make a country susceptible to strategic manipulation by private corporates

Sankar even said he'd prefer a Ponzi scheme to cryptocurrency, as the former at least invests in income-earning assets.

A Bitcoin, by contrast, "is akin to a zero-coupon perpetual; it's like you paid money to buy a bond which pays no interest and which will never pay back the principal. A bond with similar cash flows would be valued at zero, which, in fact, can be argued as the fundamental value of a cryptocurrency."

With that excoriation out of the way, Sankar got to his main point: cryptocurrencies are designed to evade government control, are therefore effectively private currencies, and private currencies are never stable and seldom endure.

India, he argued, is therefore better off not tolerating cryptocurrencies – and especially stablecoins, which he labelled as potentially more dangerous because they would be more stable but still end badly.

That seems contradictory, but Sankar believes that any private currency will displace India's Rupee "to some extent." While advanced economies may be able to endure cryptocurrency-driven disruptions to their economies, the deputy governor said India lacks the consumer protection and regulatory frameworks to do so. India has also worked hard in recent years to broaden its tax base, make paying tax more culturally acceptable, and increase compliance with tax laws.

Bans of cryptocurrencies may therefore look like an overreaction in some nations, but in India are advisable and even necessary. In Sankar's view, the tokens will "wreck the currency system, the monetary authority, the banking system, and in general government's ability to control the economy."

"They threaten the financial sovereignty of a country and make it susceptible to strategic manipulation by private corporates creating these currencies or Governments that control them. All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India."

Sankar added that the Reserve Bank has considered regulations, but "found that none of them stand up to basic scrutiny."

The deputy governor's remarks are at odds with current Indian policy, announced earlier this month, that calls for a tax on cryptocurrency transactions and another – at double the rate of India's capital gains tax - on profits generated by trading in cryptocurrency. India will also create its own digital rupee.

Sankar suggested those currently invested in cryptocurrency could be provided with a "reasonable exit" to cushion then from any losses if a ban were imposed.

He also took on the argument that a crypto ban would be ineffective.

"One might as well argue that drug trafficking is a rampant phenomenon despite a ban, and therefore drug trafficking should be legalised and regulated," he said. "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." ®

Broader topics


Other stories you might like

  • Investors start betting against Bitcoin with short-trade products
    Some crypto-bros keep the faith in the face of market onslaught

    ProShares, the issuer of exchange-traded funds with around $65 billion under management, has launched the first short Bitcoin exchange-traded product in the US, offering a way for investors to make money from the ongoing cryptocurrency meltdown.

    Dubbed the ProShares Short Bitcoin Strategy, the ETF is set to launch on the New York Stock Exchange under the ticker BITI. Bitcoin declined to $17,601.58 over the weekend, according to Coin Metrics. It has lost 70 percent of its value since last November's highs.

    Speaking to the Financial Times, Nate Geraci, president of wealth management firm The ETF Store, said there would be "a rather robust market" for the short funds.

    Continue reading
  • Crypto market crashes on Celsius freeze, inflation news
    Not a good moment to look at that digi-coin portfolio, fam

    The cryptocurrency world is experiencing what can only be described as a meltdown, with prices plummeting today to lows not seen since the end of 2020.

    The plunge is likely due to several factors including general economic uncertainty as seen in the stock market, inflation, bearish conditions and loss of confidence in crypto-coins, and scared money and bots being spooked by whales selling.

    It definitely did not help that crypto-lending biz Celsius Network put a freeze on withdrawals, swaps, and transfers Sunday night. Soon after Bitcoin tumbled 10 percent, Ethereum lost 19 percent of its value, and fan-favorite Dogecoin shed nearly 15 percent of its value, or about $0.01, since then. 

    Continue reading
  • Singapore promises 'brutal and unrelentingly hard' action on dodgy crypto players
    But welcomes fast cross-border payments in central bank digital currencies

    In the same week that it welcomed the launch of a local center of excellence focused on crypto-inspired central bank digital currencies, Singapore's Monetary Authority (MAS) has warned crypto cowboys they face a rough ride in the island nation.

    The center of excellence (COE) was established by the Mojaloop Foundation – an open source effort to create payment platforms to make digital financial services accessible to those without access to banks. The COE aims to "accelerate financial inclusion in emerging markets" through hackathons, workshops and pilot projects while examining expanded CBDCs payment capabilities."

    Singapore's sovereign wealth fund has invested in Mojaloop, and MAS chief fintech officer Sopnendu Mohanty serves as a board advisor and the authority provides representatives to the Foundation's working group, alongside folks from the Bill & Melinda Gates Foundation, Google, and more.

    Continue reading
  • India extends deadline for compliance with infosec logging rules by 90 days
    Helpfully announced extension on deadline day

    Updated India's Ministry of Electronics and Information Technology (MeitY) and the local Computer Emergency Response Team (CERT-In) have extended the deadline for compliance with the Cyber Security Directions introduced on April 28, which were due to take effect yesterday.

    The Directions require verbose logging of users' activities on VPNs and clouds, reporting of infosec incidents within six hours of detection - even for trivial things like unusual port scanning - exclusive use of Indian network time protocol servers, and many other burdensome requirements. The Directions were purported to improve the security of local organisations, and to give CERT-In information it could use to assess threats to India. Yet the Directions allowed incident reports to be sent by fax – good ol' fax – to CERT-In, which offered no evidence it operates or would build infrastructure capable of ingesting or analyzing the millions of incident reports it would be sent by compliant organizations.

    The Directions were roundly criticized by tech lobby groups that pointed out requirements such as compelling clouds to store logs of customers' activities was futile, since clouds don't log what goes on inside resources rented by their customers. VPN providers quit India and moved their servers offshore, citing the impossibility of storing user logs when their entire business model rests on not logging user activities. VPN operators going offshore means India's government is therefore less able to influence such outfits.

    Continue reading
  • China's blockchain boosters slam crypto as Ponzi scheme
    Communists reckon Bill Gates and Warren Buffet got it right

    Executives at China's Blockchain-based Service Network (BSN) – a state-backed initiative aimed at driving the commercial adoption of blockchain technology – labelled cryptocurrency "the biggest Ponzi scheme in human history" in state-sponsored media on Sunday.

    "The author of this article believes that virtual currency is becoming the largest Ponzi scheme in human history, and in order to maintain this scam, the currency circle has tried to put on various cloaks for it," wrote Shan Zhiguang and He Yifan in the People's Daily.

    He Yifan is the CEO of startup Red Date Technology – a founding member and architect behind BSN – where he serves as executive director. Co-author Zhiguang Shan is chair of the BSN Development Alliance.

    Continue reading
  • US senators seek input on their cryptocurrency law via GitHub – and get some
    Those town hall meetings that go off the rails? That's the internet all day, every day

    The two US senators behind a proposed law to bring order to cryptocurrency finance have published their legislation to Microsoft's GitHub to obtain input from the unruly public.

    The bill, known as the Responsible Financial Innovation Act, was introduced by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) on June 7 to create a regulatory framework governing digital assets, cryptocurrencies, and blockchain technology.

    It has been welcomed by the Stellar Development Foundation and cryptocurrency trade group the Chamber of Digital Commerce, a sign that the legislation doesn't ask much of those it would regulate.

    Continue reading

Biting the hand that feeds IT © 1998–2022