Recently, a top official from India’s central banking reiterated his warnings to Prime Minster Modi about the dangers cryptocurrencies pose for the country’s financial systems. He compared digital assets with Ponzi schemes, echoing long-held criticisms about the asset class by investors.
Crypto Is A Ponzi, Says RBI
During Monday’s speech at a banking conference, Governor T. Rabi Sankar of Reserve Bank of India (RBI), voiced his disapproval. Bloomberg reported that the governor said that cryptocurrency undermines financial sovereignty and integrity because they lack “intrinsic worth”.
Sankar stated, “We also saw that cryptocurrencies aren’t amenable to being defined as a currency or asset or commodity; there are no underlying cash flows and they have no intrinsic worth; that they are akin o Ponzi schemes, and possibly worse.”
Ponzi schemes are a fraudulent type of investment scheme in which investors’ returns are funded primarily by money received from new investors. These schemes are often unable to establish a business model and fall apart when investors stop investing in the “business”. Organizers then flee with the investors’ money.
Warren Buffet made similar comparisons with Ponzi schemes and called Bitcoin and cryptocurrency ‘untrue investments’. He claims that investors don’t put their money into useful production but “hope that the next guy will pay more” for their holdings.
Peter Schiff, a well-known economist, anti-Bitcoiner, and gold bug, prefers real gold over what is commonly called “digital” gold for the same reasons. To prevent gold’s price from falling to zero, there is an “intrinsic” value attached because it has industrial uses.
Crypto VS Financial System
The Governor’s assessment of cryptocurrency differs from the Russian authorities, who have decided to regulate crypto “analog to currencies”. The central bank of Russia, however, is equally hostile to crypto as the RBI and seeks to ban the asset class.
Sankar stated that cryptocurrencies could “wreck” the currency system, the financial authority, and the ability of the government to control the economy.
The International Monetary Fund urged El Salvador last month to withdraw Bitcoin from legal tender. They considered it a threat for financial stability and market integrity.
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