Former RBI governor Raghuram Rajan on Wednesday said only a "handful" of the 6,000-odd cryptocurrencies in existence today might survive going forward. Comparing the craze in cryptocurrency with that of the tulip mania in the Netherlands in the 17th century, Rajan said people hold cryptocurrencies for two reasons — store of value and an asset which might appreciate; and for use in payments.
"Do we really need 6,000 cryptocurrencies to do payments? One or two, may be a handful, that is going to survive to be used for payments even if the technology is so useful that it is a substitute for cash and currency... That would suggest that most cryptos are unlikely to survive with high values going forward," Rajan told CNBC-TV18.
The remarks come a day after the government listed for introduction in Parliament a Bill to ban all private cryptocurrencies, with some exceptions. 'The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021', to be introduced in the winter session of Parliament beginning November 29, seeks to "create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India. The bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses."
Rajan further said cryptos may pose the same problem as unregulated chit funds which take money from people and go bust. "If things have value only because they will have more value down the line, if that's the only reason, then that's what we call a bubble," Rajan pointed out.
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, is listed for introduction in the Lok Sabha in the winter session, scheduled to begin from November 29.
The bill seeks to "create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. It also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses", as per the bill listed for introduction on the Lok Sabha website.
Currently, there is no regulation or any ban on the use of cryptocurrencies in the country. Against this backdrop, Prime Minister Narendra Modi, earlier this month, held a meeting on cryptocurrencies with senior officials, and indications are that strong regulatory steps could be taken to deal with the issue.
Recently, there have been a rising number of advertisements, featuring even film stars, promising easy and high returns on investments in cryptocurrencies in recent times, amid concerns over such currencies being allegedly used for luring investors with misleading claims.
Last week, the Standing Committee on Finance, chaired by BJP member Jayant Sinha, met the representatives of crypto exchanges, blockchain and Crypto Assets Council (BACC), among others, and arrived at a conclusion that cryptocurrencies should not be banned, but it should be regulated.
The Reserve Bank of India has repeatedly reiterated its strong views against cryptocurrencies, saying they pose serious threats to the macroeconomic and financial stability of the country and also doubted the number of investors trading on them and their claimed market value.