The RBI has been on the right path with respect to containing inflation and does not see any need for changing our inflation target, its Governor Shaktikanta Das said on Friday.
“We had done our scenario analysis and found that inflation in the worst situation would be around 5% in 2021-22. But then the war happened,” Das said at a Banking and Economy summit.
“We wanted the economy to have a safe landing, and the GDP to be above pre-pandemic levels. Law mandates RBI has to maintain inflation around 4% keeping growth in mind. Growth had to be given primacy during pandemic times, but we did not lose sight of inflation.”
“When prices went up due to the Ukraine war, we did not hesitate to take a decision by hiking rates out of turn. Looking back, I think we have been on the right course,” he said, adding that he doesn’t not see any need for changing our inflation target even though we had to tolerate slightly higher inflation because the economy required hand-holding.
Stating that earlier theories on RBI being behind the curve is over, he said our target of 4% plus/minus 2% CPI gives us sufficient flexibility in MPC decision making.
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On cryptocurrencies, Das said they are “nothing but gambling” and their perceived “value is nothing but make-believe" and called for a ban on them.
“Every asset, every financial product has to have some underlying (value) but in the case of crypto there is no underlying… not even a tulip…and the increase in the market price of cryptos, is based on make-believe. So anything without any underlying, whose value is dependent entirely on make-believe, is nothing but 100 per cent speculation or to put it very bluntly, it is gambling,” the governor said.
“Since we don't allow gambling in our country, and if you want to allow gambling, treat it as gambling and lay down the rules for gambling. But crypto is not a financial product,” Das asserted.
Warning that legalizing cryptos will lead to more dollarisation of the economy, he said cryptos masquerading as a financial product or financial asset, is a completely misplaced argument.
Explaining it, he said the bigger macro reason for banning them is that cryptos have the potential to and the characteristics of becoming a means of exchange; an exchange of doing a transaction.
Since most cryptos are dollar-denominated, and if you allow it to grow, assume a situation where say 20 per cent of transactions in an economy are taking place through cryptos issued by private companies. Central banks will lose control over that 20 per cent of the money supply in the economy and their ability to decide on monetary policy and to decide on liquidity levels. Central banks' authority to that extent will get undermined, it will lead to a dollarization of the economy.
“Please believe me, these are not empty alarm signals. One year ago in the Reserve Bank, we had said this whole thing is likely to collapse sooner than later. And if you see the developments over the last year, climaxing in the FTX episode, I think I don't need to add anything more,” Das said.
To a question whether he sees any threat to the safety and security of banking from the increased digitization of payments, Das said banks have to ensure that they are not swallowed by big tech which today control most digital transactions.
“Issues of data privacy and issues of robustness of the tech infrastructure of banks have to be the focus of banks. Since many banks are actively engaged with many big tech, their challenge is to ensure that this should not lead to a situation where banks are swallowed up by the big tech. Banks should take their own decisions and not to be allowed to be dominated by big tech,” Das said.
On the CBDC being piloted now, he said central banks issued digital currencies are the future of money and its adoption can help save on logistic and printing costs.
“I think CBDC is the future of money,” the governor said, adding “since lots of central banks are doing/working on it and we cannot be left behind but at the same time we have to ensure that its technology is robust and very safe and ensure that it's not cloned or counterfeited.”
(With agencies inputs)
(Edited by : Pradeep John)
First Published: Jan 13, 2023 7:09 PM IST
