Cryptos may pose the same problem as unregulated chit funds: Raghuram Rajan
- A lot of people holding crypto assets are going to be distressed
- Governments can insist on extracting information from crypto entities
- Government of India must allow the underlying blockchain technology to flourish
Former Reserve Bank of India (RBI) Governor Raghuram Rajan said only a handful of the 6,000-odd cryptocurrencies in the market today would survive.
"If things have value only because they will be pricier down the line, that’s a bubble,” Rajan told CNBC-TV18. "A lot of cryptos have value only because there is a greater fool out there willing to buy," he added.
Rajan compared the current mania in cryptocurrencies to the 17th century tulip mania in the Netherlands. He said cryptos may create the same trouble as unregulated chit funds, which take money from people and go bust, and a lot of people holding crypto assets are going to be distressed.
Most cryptocurrencies did not have a payment value and some of them would survive to provide cross-border payments, he said. “In the US, crypto is a $2.5 trillion problem that nobody wants to regulate,” Rajan pointed out.
Governments can insist on extracting information from crypto entities so they can examine them for fraud. "This is a situation where at best you can send warnings to the broader public," Rajan added.
He said the government of India must allow the underlying blockchain technology to flourish. Blockchain provides cheaper ways of transacting, especially cross-border transactions.
Rajan said there was a reason to worry if we had a significant investment in these assets and they lost value in the long run. The government is likely to present a bill in the upcoming winter session of Parliament to create a framework to regulate a digital currency issued by the RBI and to ban all but a few private cryptocurrencies.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is listed for introduction in the Lok Sabha in the winter session.