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Making a strong case for banning cryptocurrencies, Reserve Bank Deputy Governor T Rabi Sankar on Monday said they are even worse than ponzi schemes and threaten the financial sovereignty of a country.
Observing that crypto-technology is underpinned by a philosophy to evade government controls, he said they have been specifically developed to bypass the regulated financial system.
More substantially, he added, cryptocurrencies can wreck the currency system, monetary authority, banking system, and in general the government's ability to control the economy.
"All these factors lead to the conclusion that banning cryptocurrency is perhaps the most advisable choice open to India," Sankar said while delivering a keynote address at the Indian Banks Association 17th Annual Banking Technology Conference and Awards.
The deputy governor said crypto-technology is underpinned by a philosophy to evade government controls.
"Cryptocurrencies have specifically been developed to bypass the regulated financial system.
"These should be reason enough to treat them with caution.
"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," he noted.
Additionally, they undermine financial integrity, especially the KYC regime and AML/CFT (anti-money laundering/combating the financing of terrorism) regulations and at least potentially facilitate anti-social activities, Sankar said.
"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...
"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.
The senior RBI official further said global advertisements with themes such as 'fortune favours the brave' is reflected somewhat in our very own 'lag ja re...kuch to badlega'.
"It would serve us well if the understanding about cryptocurrencies goes beyond the hype and gets rooted in reason and pragmatism," he added.
Sankar also dismissed as superficial the argument that cryptocurrencies should not be banned because a ban is unlikely to be effective.
One might as well argue that drug trafficking is a rampant phenomenon despite a ban, and therefore drug trafficking should be legalised and regulated, he remarked.
If cryptocurrencies are banned, the vast majority of investors who are law abiding would desist from investing.
Those few elements who would continue to invest will essentially be carrying out an illegal activity.
Such exceptions should reinforce the need for a ban, rather than invalidate it, he said.
Photograph: Dado Ruvic/Reuters