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New Delhi: The Reserve Bank of India (RBI) raised a concern over cryptocurrencies or virtual digital assets (VDAs), which might lead to the ‘dollarization’ of the economy, as feared by the central bank.

The apex lender fears that crypto assets, issued by foreign players, could be against the country’s sovereign interest.

Officials said cryptos have the potential to become a medium of exchange and replace the rupee in all financial transactions.



“Almost all cryptocurrencies are dollar-denominated and issued by foreign private entities, it may eventually lead to dollarization of a part of our economy, which will be against the country’s sovereign interest,” the officials told members of the finance committee, including Jayant Sinha, chairman of the Parliamentary Standing Committee on Finance.

RBI’s specific concerns towards cryptocurrencies leading to ‘dollarization’ is based on an incorrect or at least a short-sighted assumption, said the market experts.

The assumption that ‘almost all cryptocurrencies are issued by foreign private entities’ is incorrect considering the number and extent of crypto projects being built in India, said Purushottam Anand, Founder, Crypto Legal.

“It is only because of the current regulatory uncertainty and excessive taxation policies that many of the crypto projects have shifted their base to other jurisdictions,” he added.

By the same logic, a conducive regulatory environment in India can lead to a situation where people from the world will buy cryptocurrencies issued by Indian entities which lead to de-dollarization, Anand said.

Market participants said that the dollar has always taken over the local currency at international level, when the governments of various nations buy oil, food stables, gold or other things. However, it is the common man who is earning dollars here

The fear of the US dollar taking over the Indian economy or the cryptocurrency doing the same is far from the truth, said Pratik Gauri, co-founder and CEO, 5ire.

“The cream of the tech workers class in crypto technologies to leave India because most of their compensation comes in crypto or digital assets that were recently loaded with a 30 per cent tax,” he added.

Market experts are also worried over the brain drain from the country as the skilled blockchain and crypto talent is moving towards safe hubs like Dubai and Singapore, if not the United States.

The imposition of a 30 per cent tax and 1 per cent TDS on all virtual digital Assets has impacted the operations of crypto exchanges in India. The continuing uncertainty surrounding the legality of cryptos in India has left many concerned.

Dubai has emerged as a popular hub for the crypto players fleeing from India, which is sending mixed signals to the crypto businesses. On the contrary, Dubai has already enacted a law regulating virtual assets in February 2022.

Anupam Shukla, partner, Pioneer legal said that cryptos have the potential to replace the fiat currency in some instances, RBI is rightfully wary of the impact cryptos may have on the stability of the nation’s financial systems.

“Considering the turmoil being caused by economic insecurity in countries like Sri Lanka, and the impact of El Salvador’s bitcoin bullishness which has worsened the Central American republic’s already precarious financial situation, RBI’s concerns surrounding unregulated virtual financial instruments may be justified,” he added.

Raghav Gupta, Founder, EquiDEI said that crypto and blockchain businesses are the future of industrialisation and like any other businesses people are free to choose what they think is right for their business.

“Dollarization can be interpreted in two ways – one for crypto business owners, ease of doing business but at the same time, it can also be seen as the local currency not having enough weight around,” he added.

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