Cryptocurrencies, such as bitcoin, are worse than a Ponzi scheme and should be banned in India, Shri T Rabi Sankar, a deputy governor of the Reserve Bank of India (RBI) said Monday.
«As a store of value, cryptocurrencies like bitcoin have given impressive returns so far, but so did tulips in 17th century Netherlands,» Sankar said in a keynote address at the Indian Banks Association’s banking technology conference. The speech was posted on the RBI’s website.
Sankar said Ponzi schemes – which pay out to early investors by taking money from new investors -- may be better than cryptocurrencies from a social perspective.
Fundamental value of zero?
«Even Ponzi schemes invest in income earning assets. A bitcoin 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,» Sankar said.
Currently, there is no ban or regulation on cryptocurrencies in India, according to a report in The Indian Express. An order from the RBI banning banks from supporting crypto transactions was reversed by the courts in early 2020, the report said, noting the country’s parliament is set to take up discussion of a bill to prohibit «private cryptocurrencies.»
The country is planning to impose a tax of 30 percent on income from cryptocurrencies and other digital assets, Reuters reported earlier this month.
Posing a threat?
When it came to saying how he really feels about cryptocurrencies, Sankar didn’t stop with a preference for Ponzi schemes, saying the digital tokens were a threat to the financial system.
He said cryptocurrencies undermine financial integrity, especially by circumventing Know Your Customer (KYC) and Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) rules.
«More substantially, they can (and if allowed most likely 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,» Sankar said.
«All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India. We have examined the arguments proffered by those advocating that cryptocurrencies should be regulated and found that none of them stand up to basic scrutiny,» he said.
