Indian economy at risk of ‘dollarization’ from cryptocurrencies: report

Pradipta Mukherjee
·1 min read

Parts of the Indian economy can lead to “dollarization” due to cryptocurrencies, which would be against the national interest, top officials of the Reserve Bank of India (RBI) told a parliamentary panel, according to local media.

See related article: India’s financial stability at risk from cryptos: IMF

Fast facts

  • Local media quoted unnamed officials in the RBI who briefed the Parliamentary Standing Committee on Finance, about apprehensions regarding cryptocurrencies.

  • The central bank told the committee that almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, which may eventually dollarize a segment of the Indian economy.

  • They said that cryptocurrencies could be a medium of exchange and replace the rupee in financial transactions, both in domestic and cross-border transactions, affecting the monetary system and undermining the RBI’s capacity to regulate capital flow.

  • The fate of cryptocurrencies has recently come into question in light of the cryptocurrency crash led by the de-pegging of Terra’s algorithmic stablecoin UST.

  • Cryptocurrencies threaten the decreased resources for banks to lend, as digital assets attract investors to pledge personal funds, the RBI officials reportedly said.

  • The RBI has taken a consistent stance against investing in cryptocurrencies, with a deputy governor even calling for an outright ban.

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