India central bank official slams crypto as a “ponzi” scheme
A senior official at India’s central bank has called for a total ban on cryptocurrency activity in the country saying that the arguments for the digitally-generated currency do not stand up to scrutiny.
“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to ponzi schemes, and may even be worse.
These should be reason enough to keep them away from the formal financial system,” T Rabi Shankar, deputy governor of the Reserve Bank of India said in a speech.
Official calls for crypto ban
He added that banning all cryptocurrency activities is “perhaps the most advisable choice open to India”.
Shankar said that the digital currencies minted using blockchain technology have specifically been developed to bypass the country’s tightly regulated financial system.
The comments come a fortnight after Finance Minister Nirmala Sitharaman announced a tax on holding and transacting digital assets.
In the federal budget for the year beginning April 2022, Sitharaman announced a tax on profit on cryptocurrency gains at a hefty 30%. A 1% tax deducted at source was introduced which means the seller receives the proceeds minus that percentage in a transaction.
Lastly, crypto investors’ potential tax bills, any losses in digital assets transactions cannot be squared against profits in other investments that reduce the tax liability.
Indian crypto platforms struggle
The comment drew optimism from the cryptocurrency community in India because the tax imposition affirmed its legal status.
Cryptocurrency trading platforms are struggling in India to gain recognition. Despite their nearly decade-long presence in India, these platforms only count around 25 million active users with assets estimated at $6bn out of the country’s 1.4 billion population.
The central bank has always taken a strong stance against the private digital currencies that are designed to be traded freely and anonymously.
That is because concerns have been raised cryptocurrency may be used for money laundering and financing terrorism.
Crypto threatens “financial stability”
Crypto akin to Tulip Bubble says RBI – Photo: ShutterstockThe latest remarks by Shankar follow his boss’s criticism of the cryptocurrency ecosystem.
“Investors in cryptocurrency should keep in mind that they are investing at their own risk. They should also keep in mind that the cryptocurrency has no underlying (asset), not even a tulip,” the RBI Governor Shaktikanta Das said last week.
Das was referring to the 17th-century Dutch tulip bubble which is generally regarded as the financial crisis of the modern era.
“Private cryptocurrency or whatever name you call it is a big threat to our macroeconomic stability and financial stability.”
Sitharaman too, despite removing uncertainty about the legal status of crypto trading with the highest tax rates for such transactions, likened them as winnings from activities such as gambling and horse racing that are legal but cannot be encouraged.
Indian crypto users may go offshore
“The government has the sovereign right to tax profit made from cryptocurrency transactions, and the decision on banning or not banning will be taken based on feedback from consultations. I’m not doing anything to legalise or ban cryptocurrencies at this stage,” Sitharaman told lawmakers last week.
Crypto users may, however, vote with their – digital – feet. One investor told Capital.com last week that he planned to offshore his current holdings in the face of ongoing uncertainty over India’s treatment of tokens such as bitcoin and ethereum.
“My plan is to shift my wallet to my brother who lives abroad. He can hold on to it for five, six years and sell,” he said.
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