The governor of India’s central bank, the Reserve Bank of India (RBI), has raised concerns about the risks posed by cryptocurrencies to the financial system, citing the recent U.S. banking crisis as an example.
Speaking at the 17th K P Hormis Commemorative Lecture on Friday, RBI Governor Shaktikanta Das emphasized the need for robust regulators, sustainable growth, and prudent asset liability management.
U.S. banking crisis demonstrates crypto risks
Governor Das’s comments were in reference to the recent collapses of several banks in the U.S., including Signature Bank and Silicon Valley Bank, which regulators closed down due to financial insolvency.
The incidents have raised questions about the role of cryptocurrencies in the financial system, with some attributing the banks’ failures to their acceptance of crypto clients without adequate safeguards.
While regulators have denied any link between the banking crisis and cryptocurrencies, Senator Elizabeth Warren (D-MA) has been vocal in her criticisms of crypto-friendly banks, arguing that they pose a systemic risk to the financial system.
Governor Das echoed these concerns, warning that cryptocurrency not only threatens India’s macroeconomic and financial stability but also undermines the RBI’s ability to regulate the country’s monetary system.
Governor Das emphasized the importance of prudent asset liability management in ensuring financial stability, noting that the Indian economy remains resilient despite the challenges posed by the pandemic.
He also highlighted the RBI’s commitment to sustainable growth and robust regulation, underscoring the need for a collaborative approach to maintaining financial stability.
Governor of the Year highlights crypto risks
Governor Das’s warnings about crypto risks come amid growing global concerns about the potential impact of digital currencies on the financial system. The RBI chief was named Governor of the Year by the Central Banking Awards 2023 on Wednesday, recognizing his leadership in steering the Indian economy through the pandemic.
However, despite his achievements, Governor Das remains wary of the risks posed by cryptocurrencies, which he has previously described as a “serious concern” for the financial system. His comments at the K P Hormis Commemorative Lecture reflect a growing consensus among central bankers that cryptocurrencies pose a significant threat to financial stability and should be subject to greater scrutiny and regulation.