Cryptocurrency has no underlying value, not even a tulip, warns RBI governor

In a post monetary policy press conference, RBI governor Shaktikanta Das said Private cryptocurrencies are a threat to macroeconomic and financial stability and investors, who are investing at their own risk, should keep risks in mind.

“Private cryptocurrencies or whatever name you call it are a threat to our macroeconomic stability and financial stability. They will undermine the RBI’s ability to deal with issues of financial stability and macroeconomic stability,” Das told reporters.

Cautioning investors, the governor said such assets have no underlying value whatsoever, “not even a tulip”.

Earlier, the Union Budget has proposed a 30% tax on virtual digital assets like Bitcoin and Ethereum.

Further, the buyer shall be liable to withhold tax on payments made for the purchase of such asset at the rate of 1% as withholding tax. Also, gains or losses on sale of virtual assets will not be allowed as set off against any other gains or losses. i.e. it will be treated as a separate class of asset.

While presenting the Budget, Sitharaman has also said RBI will launch its own digital currency or digital asset of cryptocurrency.

Industry estimates suggest there are 15 million to 20 million crypto investors in India, with total crypto holdings of around ₹40,000 crore ($5.37 billion). No official data is available on the size of the Indian crypto market.

The crypto market in India grew 641% in the year through June 2021, according to an October report from Chainalysis, an industry research firm.

Earlier, during the day, the Central bank has left the benchmark interest rate or repo rate — the rate at which banks borrow from the Central bank — unchanged at 4% for the tenth consecutive time and decided to continue with accommodative stance.

However, in a surprise move, RBI has also not tinkered with reverse repo rate, a move, which was widely believed by commentators and analysts that the time has come for policy normalisation amid inflationary concerns.

The RBI has adopted an ultra-loose monetary policy in the wake of coronavirus pandemic and in order to shore up the economy with adequate liquidity, it has last slashed key rate to record low of 4% and it has been held at that level since May 2020.

The governor has further projected India’s economic growth for the financial year 2023 (FY23) at 7.8%. The growth rate for the current financial year is retained at 9.2%.