Top Reserve Bank of India (RBI) officials have informed a parliamentary committee that the acceptance of cryptocurrencies may lead to a degree of dollarization of the economy. It will limit the central bank’s ability and independence to conduct monetary inputs and actions effectively. “It will severely damage the RBI’s ability to formulate monetary policy and control the country’s monetary system,” an RBI official warned.

They went on to say that doing so would jeopardize the country’s sovereignty. According to a Press Trust of India (PTI) report, top RBI officials warned a parliamentary committee that the acceptance of cryptocurrencies might result in partial dollarization of the economy, posing a threat to the financial system’s stability.

Because almost all virtual currencies are dollar-denominated and issued by foreign private organizations, a media source quoted an RBI official as stating at the current proceedings of the Parliamentary Standing Committee on Finance.

Former Minister of State for Finance Jayant Sinha chairs the Parliamentary Standing Committee on Finance. The RBI is a statutory authority that reports to parliament. As part of its parliamentary responsibilities, the panel is deliberating extensively on economic and financial matters.

One point raised by RBI officials was that it may harm the financial sector. Cryptocurrencies may appear to be a more appealing alternative, and individuals may move cash away from banks and onto crypto assets, leaving banks with less resources to lend.

In recent weeks, Indian authorities have responded more regularly to cryptocurrency-related matters. During her visit to the IMF Springs Meeting 2022 last month, Indian Finance Minister Nirmala Sitharaman discussed cryptocurrency in an IMF-hosted panel discussion and another event at a university. She stated that blockchain has enormous promise, but India would not hurry to make a judgment on crypto adoption or regulation. She recently takes issue with blockchain technology’s anonymity aspect.