RBI Deputy Governor: Banning Cryptocurrencies Is 'Sensible Choice'

T. Rabi Sankar of the Reserve Bank of India (RBI) likened cryptocurrencies to Ponzi schemes and said banning them rather than regulating them would be the “smartest option” for the Indian government.

Sankar, deputy governor of the Reserve Bank of India, told the audience in a keynote speech on February 14, “We also see that cryptocurrencies are not suitable to be defined as currencies, assets or commodities.”

“A cryptocurrency is not a currency, nor is it a financial or physical asset, not even a digital asset. Therefore, it cannot be regulated by any financial sector regulator. It is impossible to regulate something that cannot be defined.”

Sankar believes that regulating cryptocurrencies will eventually allow them to be used as a store of value, or even a currency in some cases. Merely regulating it is tantamount to encouraging its use within the framework set by the government. However, he acknowledged that some people would still use cryptocurrencies if they were banned, just as “drug trafficking is still a rampant phenomenon despite the ban.”

He also noted that allowing cryptocurrencies to exist in an ecosystem dominated by fiat currencies "is bound to have destabilizing effects on a country's monetary and fiscal stability." If the cryptocurrency is regulated and can be used as an investment asset, its usefulness as a store of value will increase and may draw more users away from the rupee, Sankar said.

Sankar slammed the true value of cryptocurrencies, saying:

“Furthermore, unlike the rupee’s value, which is based on monetary policy and its fiat currency status, the value of crypto-assets is entirely dependent on the expectation that others will also value and use them.”

India is one of many countries where cryptocurrency companies and lawmakers are demanding clearer regulation to guide their actions. Without such clarity, it is difficult for businesses to develop long-term plans for their products and services to ensure they do not break any laws.

On Feb. 11, Finance Minister Nirmala Sitharaman said she would not make an immediate decision on whether to legalize or ban cryptocurrencies, which would leave India in long-term regulatory instability.

The Indian government has been experimenting with its ability to deploy a central bank digital currency (CBDC). Sitharaman revealed on February 1 that she expects to launch a digital rupee initiative by 2023 to boost economic growth.