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Cryptocurrencies pose a huge risk to financial stability and monetary stability. Reserve Bank of India Governor Shaktikanta Das said this at an event organized at the Peterson Institute for International Economics on Friday.
He said – I am really of the opinion that this is something that should not be allowed to dominate the financial system. It also creates risks for the banking system. It could also create a situation where the central bank could lose control of the money supply in the economy.
If the central bank loses control over the money supply in the economy, how will it check the liquidity available in the banking system? How can a central bank control inflation by reducing the money supply or losing the money supply in times of crisis? That's why we view crypto as a big risk.
Cryptocurrency a matter of concern for central banks around the world Shaktikanta Das said there should be an international understanding for cryptocurrencies, as transactions are cross-country. One must be fully aware of the major risks associated with this.
I don't think it should be encouraged. As guardians of financial stability, it is a matter of great concern for central banks around the world. Governments are also becoming increasingly aware of the potential risks in cryptocurrencies.
India is the first country to raise questions about cryptocurrency Das said that India was the first country to raise questions about cryptocurrencies. Under India's chairmanship of the G-20, it was agreed to develop international understanding on how to deal with the crypto ecosystem. He said that some progress has been made in this regard.
He said – I think more work still needs to be done. From India's perspective, from the Reserve Bank's perspective, I think we are one of the first central banks that have expressed very clearly their serious concerns about cryptocurrencies.
Cryptocurrencies originated to bypass the system RBI Governor said that first of all we have to understand the origin of cryptocurrency. It originated to bypass the system. Cryptocurrency has all the properties of money. The fundamental question is whether we, as authorities, are comfortable with privately issued cryptocurrencies.
The big question is whether we are comfortable with crypto having the characteristics of being a currency. Or are we comfortable having a private currency system parallel to fiat currency? Obviously, if a certain part of your economy is disintegrating and it is dominated by crypto assets or private crypto then the central bank loses control over the entire monetary system.
so This will create huge instability in the monetary system. It could also lead to massive instability in the financial sector. There are huge risks involved, so we are making it clear that we have to deal with this very carefully.
What is cryptocurrency? Cryptocurrency is a type of virtual currency. It is also called digital currency. Like currencies like dollars or rupees, transactions can also be done with cryptocurrencies.
Bitcoin is the most popular cryptocurrency among these. Every Bitcoin transaction is recorded in a public ledger via the blockchain, which is a record maintenance system maintained by individual users in a decentralized manner.
History of Cryptocurrency
- In 1983, American cryptographer David Cham first created cryptographic electronic money named e-cash.
- It was implemented through DigiCash in 1995.
- This first cryptographic electronic money required a software to withdraw it from a bank in the form of notes.
- This software was completely encrypted. Through software, the recipient of cryptographic electronic money was given an encrypted key i.e. a special type of key.
- Using this software, the money issuing bank, government or other third parties were not able to track the transaction.
- In 1996, the US National Security Agency published a paper describing the cryptocurrency system.
- In 2009, a virtual creator named Satoshi Nakamoto created a cryptocurrency named Bitcoin. Only after this did cryptocurrency gain worldwide popularity.
