India’s cautious approach to cryptocurrency, as led by the Reserve Bank of India (RBI), has gained support from leading economists who argue that the risks associated with digital currencies far outweigh their benefits. Speaking in New Delhi, University of Michigan economist Amiyatosh Purnanandam highlighted the importance of regulating financial innovation and expressed concerns about the potential for a financial crisis linked to the rise of unregulated digital assets like cryptocurrency.
Purnanandam, a prominent voice on financial policy, praised the RBI’s decision not to allow widespread cryptocurrency adoption. “The whole premise of crypto is that we will escape all regulation. There is no jurisdiction. And, it indeed is very cryptic,” he said. “I think the RBI policy has been to not allow crypto in any meaningful way. In my mind, that’s a good approach.”
He emphasized that while cryptocurrencies are often viewed as cutting-edge financial innovation, their tangible benefits remain limited. “It’s a kind of financial innovation where the benefits are very small in my mind and the costs are enormous.”
Purnanandam’s critique of cryptocurrencies comes at a time when India’s financial sector has made significant strides in strengthening its ability to withstand economic shocks. The banking sector, according to him, is now well-capitalized, reducing the likelihood of a major financial crisis. “The Indian banking sector’s ability to withstand this shock has improved a lot because it is very well capitalized now,” he said.
However, Purnanandam pointed out some areas of concern in India’s financial landscape, particularly the rise of unsecured debt and speculative trading by retail investors. “Among potential sources of risk propping up in the Indian financial sector, unsecured debt will be one. A lot of trading by retail investors in these speculative markets will be another,” he warned.
One area where India has made remarkable progress, according to the economist, is in its digital payments infrastructure, particularly with the Unified Payments Interface (UPI). “Some of the things that India has done have been absolutely marvellous, such as the way the payment system works in this country with the UPI. It has been a fantastic achievement,” he noted. The UPI system, which enables same-day settlement in trade, has been lauded globally and is seen as a significant advancement in India’s financial sector. “The US is still not there,” he added, underscoring India’s leadership in financial technology.
When asked about India’s reluctance to adopt global environmental policies such as the Carbon Border Adjustment Mechanism (CBAM), Purnanandam expressed sympathy for the country’s position. He argued that developing nations like India should be given concessions to balance their economic development with environmental sustainability. “There needs to be some sort of concession given to developing countries like India. Otherwise, politically, I don’t see this happening,” he said.
Regarding the future of cryptocurrency, Purnanandam remained sceptical, especially in the context of India’s financial system. While some countries have embraced digital currencies and cryptocurrency markets, he expressed doubt about their long-term viability. The introduction of the Central Bank Digital Currency (CBDC) by the RBI was noted, but he dismissed it as unnecessary in solving the nation’s financial challenges. “It’s like a solution, as I heard somebody say, looking for a problem. Crypto doesn’t really solve any problem in my mind. So, I’m extremely negative on crypto, to put it very simply.”
As India pushes forward with its ambitious goal of becoming a developed country by 2047, Purnanandam emphasized the need for further investment in human capital and addressing regional inequalities. While infrastructure development and financial reforms are on the right track, he stressed that reducing disparities between regions like Bihar, Jharkhand, and eastern Uttar Pradesh will be crucial in ensuring sustainable growth.
