Cryptocurrencies can lead to "dollarization" of a part of the economy and this could be against the country's sovereign interest, the top officials of India's central bank told a parliamentary committee on finance, according to a Press Trust of India report.
"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, the chairman of the Parliamentary Standing Committee on Finance.
Amid the "crypto crash" last week, central bank officials said cryptocurrencies have the potential to become a medium of exchange and replace the rupee in financial transactions both domestic and cross border, according to the report.
"It will seriously undermine the RBI's capacity to determine monetary policy and regulate the monetary system of the country. It could replace a part of the monetary system undermining RBI's capacity to regulate the flow of money in the system," RBI officials said.
Top officials at Reserve Bank of India (RBI) reiterated their "institutional view that cryptocurrencies should be banned," a source familiar with the matter told CoinDesk.
“The RBI has said this to the parliamentary committee last year too. The RBI is talking about the dangers of dollarisation and banning crypto with regard to its use case as a currency or legal tender not necessarily as an asset class,” said a source in the parliamentary committee on finance.
Earlier this month, CoinDesk reported about how the parliamentary committee on finance had "chided" representatives of India's crypto industry for over stating the important of crypto advocacy without addressing challenges such as terrorism and money laundering through crypto.