Cryptos are a threat to financial stability

Contact Counsellor

Last Updated11/02/2022

As per RBI, Investors in cryptocurrencies, when they are investing, should keep in mind that whatever they are investing is at their own risk.
Cryptocurrencies have no underlying [asset], not even a tulip.
Central bank is carefully working to come out with its own Central Bank Digital Currency (CBDC).

The RBI, as stated in the Union Budget proposal, will come out with the CBDC by the end of the next financial year.
The digital currency would be like the paper currency but in virtual form. It can be used digitally to make payments.
The CBDC is backed by the RBI, while any other cryptocurrency is privately created.

CBDC is a digital or virtual currency but is not comparable to the private virtual currencies that have mushroomed over the last decade.
As per RBI, private virtual currencies are at substantial odds with the historical concept of money because they are not commodities or have no intrinsic value.
While a CBDC is centralised, cryptocurrencies are decentralised and do not represent any person’s debt or liabilities and have no issuer.

The Reserve Bank of India is concerned about cryptocurrencies because they could pose a danger to the Indian currency.
The need for rupee-based savings, like as provident funds, will diminish if a large number of investors invest in digital coins rather than rupee-based savings. This will limit banks' capacity to lend money to their consumers.
Furthermore, because cryptocurrencies are unregulated and difficult to trace in the country, the government will be unable to tax the amount, creating a danger to the rupee.
Furthermore, cryptocurrencies can be utilised for illegal activities such as money laundering.
Because crypto coins are volatile, investors are vulnerable to hacks, frauds, and losses for all of these reasons.
Since cryptocurrencies acquired popularity in India as a result of a dramatic rise in Bitcoin prices, the RBI has frequently stated its strong opposition to them.
The central bank claims that cryptocurrencies are a severe danger to the country's macroeconomic and financial stability.
The number of investors trading on them, as well as their purported market value, were also questioned by the RBI.
The governor of the Reserve Bank of India has renewed his opposition to cryptocurrencies, claiming that they pose a severe threat to any financial system because they are unregulated by central banks.

The tulip bulb market bubble in the Netherlands, commonly known as 'tulipmania,' was one of the most well-known market booms and crashes in history.
It happened in Holland in the early to mid-1600s, when tulip bulb prices skyrocketed due to speculation.
The most valuable tulip bulbs sold for up to six times the average person's annual wage during the peak of the market.