Indian Government’s Chief Economic Adviser Warns of Danger in Crypto, Defi Without Regulation

The Indian government’s chief economic adviser has warned about innovations like crypto and decentralized finance (defi) in the absence of regulation. “We may not be fully aware or comprehend the kind of forces we are unleashing ourselves,” he opined.

Indian Government’s Chief Economic Adviser Skeptical of Crypto, Defi, Decentralization

The Indian government’s chief economic adviser (CEA), V. Anantha Nageswaran, reportedly warned about the danger of crypto and the risks posed by its lack of regulation Thursday at an Assocham event. Referring to cryptocurrency, he was quoted by local media as saying:

The more decentralized they become and the absence of a watchdog or a centralized regulatory authority also means that there is a world of Caribbean pirates or a world of ‘winner take all’ in terms of being able to really take it all from somebody else.

The government’s economic adviser explained that he agreed with Reserve Bank of India (RBI) Deputy Governor T. Rabi Sankar on crypto and decentralized finance (defi). The RBI official has warned that there currently appears to be a case of regulatory arbitrage with regard to crypto and defi rather than true financial innovation.

Referring to defi, Nageswaran opined:

In my opinion, while it is considered innovation, I would reserve my judgement whether it is truly innovative or truly disruptive in a positive sense or is it something that we will come to regret.

Commenting on whether cryptocurrency could be an alternative to fiat currencies, the economic adviser stressed that it has “to satisfy many purposes.” He elaborated: “It has to be a store of value, it has to have widespread acceptability, and it has to be a unit of account … In all these cases the new ‘innovations’ such as crypto or defi are yet to pass the test.”

Nageswaran concluded:

So I wouldn’t be very excited by them because sometimes we may not be fully aware or comprehend the kind of forces we are unleashing ourselves.

“I would be somewhat guarded in my welcome of some of these fintech-based disruptions like defi and crypto etc,” he noted.

The Indian government is currently working on the country’s crypto policy. The finance ministry has consulted with the International Monetary Fund (IMF) and the World Bank on crypto regulations. Last week, the Securities and Exchange Board of India (SEBI) said that the decentralized nature of crypto makes regulation challenging.

Meanwhile, the Indian central bank remains skeptical of crypto. On Friday, RBI Governor Shaktikanta Das cautioned investors against trading in cryptocurrencies, reiterating that they “pose huge risks to financial stability.”

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