RBI Governor Malhotra: India cautious on crypto, backs blockchain-style technologies

Reserve Bank of India (RBI) Governor Sanjay Malhotra on Saturday set out the central bank's stand on cryptocurrency and digital technology. He said India has chosen a cautious path on cryptocurrency but is promoting technologies such as distributed ledger technology and tokenisation. It is his statement on crypto since taking charge as Governor.

Malhotra described private cryptocurrencies as a threat to economic stability and said they need strict control. According to him, India supports technological innovation linked to crypto assets, including distributed ledger technology (DLT), a decentralised digital ledger technology, and tokenisation. But India is wary of cryptocurrencies because of concerns over monetary sovereignty, monetary policy and capital flows.

DLT is a digital system in which transactions and other entries are distributed rather than held in one place. They are shared across many computers in a network. Tokenisation is a process in which ownership of a physical asset, or sensitive data such as credit and debit card numbers, is converted into a secure digital code or token.

Speaking at the Kautilya Economic Conclave, Malhotra said, "So our approach has been to promote the underlying technology, and we are using some of these technologies within and outside the central bank under public-private partnerships (PPPs). But as far as crypto is concerned, we have taken a cautious stance."

On concerns about cryptocurrencies, the Governor said they relate to "monetary value", that is, the uniform value of money, and its possible effect on monetary policy. He said the impact could be large especially on developing economies, where there are restrictions on capital flows. He said, "The problem being addressed is not primarily one of domestic payments, because in our country and in several other countries domestic payments have now become much faster, cheaper and more convenient."

Malhotra said the bigger challenge is cross-border payments, for which options including central bank digital currencies (CBDCs) could be considered.

On rising global public debt and climbing bond yields, he said changes in yields fundamentally depend on demand and supply. He said government and private sector spending is rising, including spending driven by artificial intelligence (AI). Malhotra said, "Money is limited, spending has increased. Spending by both the government and private companies has gone up, with AI playing a role. This is pushing up bond yields and debt."

According to the Governor, the RBI's monetary policy is focused mainly on the country's growth and inflation. However, he said global interest rates also affect India, including their effect on the country's real interest rates.