According to a parliamentary panel, top RBI officials told a panel that cryptocurrencies can lead to the dollarisation of a part of the economy, which would be against India's sovereign interest.
A top officials of the RBI, including its governor Shaktikanta Das, expressed their apprehensions about cryptocurrencies, and said they were a threat to the stability of the financial system, sources told the Parliamentary Standing Committee on Finance, chaired by former minister of state for finance Jayant Sinha.
A member of the panel said that it would undermine the RBI's capacity to determine monetary policy and regulate the monetary system of the country.
The central bank officials said that besides being used for terror financing, money laundering and drug traffickers, cryptocurrencies could be a bigger threat to the stability of the country's financial system as well as the potential for a medium of exchange and replace the rupee in financial transactions both domestic and cross border.
The officials told members that cryptocurrencies may eventually lead to the dollarization of a part of our economy, which is against the country's sovereign interest, because almost all of them are dollar-denominated and issued by foreign private entities.
The RBI officials said that it will have a negative impact on the banking system as attractive assets may be used to invest their hard-earned savings in these currencies, which may lead to banks having less resources to lend.
The Union Budget presented earlier this year by Finance Minister Nirmala Sitharaman has introduced a tax on trading in cryptocurrencies and related assets like non-fungible token NFTs at a flat 30 per cent and one per cent of tax will be deducted at source TDS when a transaction takes place.
There are about 15 million to 20 million investors in India, with total holdings of around USD 5.34 billion.
There is no official data on the size of the Indian market for digital currency.
The Sinha-led panel of members, including former GST council head Sushil Modi, former Union Ministers Manish Tewari and Saugata Roy, has been holding comprehensive deliberations with financial regulators.
As statutory bodies, both the RBI and the SEBI report to Parliament and the panel have the responsibility to call on the officials of these regulators over the financial and economic issues of the country.
During the previous Modi government, Sinha was a graduate of IIT Delhi and an MBA from Harvard Business School.