Daily Crunch: India’s Central Bank says cryptocurrency ‘may even be worse’ than Ponzi schemes
India continues to debate the fate of cryptocurrencies: A nation’s regulatory and banking bodies debating blockchain technology and its related tokens is a daily occurrence. But when an official from India’s central bank compares cryptocurrencies to Ponzi schemes, we take note. That the latest broadside against crypto comes after the country discussed a new tax proposal for the asset/currency class is a slight surprise.
A top official of India’s central bank has compared cryptocurrency to a “Ponzi scheme” and suggested an outright ban in its sharpest criticism just weeks after the government proposed taxation of the virtual digital asset and paved way to recognize it as legal tender in the world’s second-largest internet market.
T. Rabi Sankar, deputy governor of Reserve Bank of India (RBI), told an audience at a banking conference that cryptocurrencies have been “specifically developed to bypass the regulated financial system,” and are not backed by any underlying cash flow.
“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,” he said.
Sankar’s remarks come at a time the Indian government has sent signals that it’s moving in the direction of recognizing the digital virtual asset as legal tender. The nation’s Finance Minister Nirmala Sitharaman proposed taxing income accrued from transfer of cryptocurrencies and NFTs in the federal budget early this month
The sale of cryptocurrencies and NFTs have made quick inroads in India in the past year despite regulatory uncertainty. The world’s second-largest internet market has seen the second-highest adoption rate for cryptocurrency investments, according to an analysis by research firm Chainalysis.
“The magnitude and frequency of these transactions have made it imperative to provide for a specific tax regime,” she said in her budget speech.
India’s central bank has so far been very cautious about cryptocurrencies. In 2018, it banned financial firms from dealing with cryptocurrency. The ban was overturned by India’s Supreme Court two years later, but most banks have continued to follow the RBI’s direction.
