India’s Central Bank Likens Cryptocurrencies To Ponzi Schemes

A top official at India’s central bank recently reiterated warnings to Prime Minister Modi’s government about the risks cryptocurrencies pose to the country’s financial system. This time, he compared digital assets to “Ponzi schemes”, mirroring some investors’ long-held criticisms of the asset class.

Crypto Is A Ponzi, Says RBI

Governor T. Rabi Sankar of the Reserve Bank of India (RBI) offered his criticisms during a banking conference speech on Monday. As reported by Bloomberg, the governor claimed that cryptocurrencies undermine both financial sovereignty and integrity, given that they lack “intrinsic value”.

“We have also seen that cryptocurrencies are not amenable to definition as a currency, asset or commodity; they have no underlying cash flows, they have no intrinsic value; that they are akin to Ponzi schemes, and may even be worse,” said Sankar.

A Ponzi -scheme is a type of fraudulent investment scheme whereby investors’ returns are funded primarily through money collected by new investors. Lacking a foundational business model, these schemes tend to fall apart when new investors stop piling into the “business”. At this point, the organizer flees with investors’ funds.

Warren Buffet has levied similar comparisons to Ponzi schemes, deeming Bitcoin and cryptocurrencies as ‘untrue’ investments. He says that investors are not putting their money towards useful production, but simply “hoping that the next guy pays more” for their holdings.

Peter Schiff – a renowned economist, gold bug, and anti-Bitcoiner – prefers real gold to what is often called “digital gold” for the same reason. Since gold has industrial use-cases, it has a form of “intrinsic value” attached to prevent its price from plummeting to zero.

Crypto VS Financial System

The governor’s assessment of cryptocurrencies differs from that of Russian authorities, which have decided to regulate crypto as “an analog to currencies”. However, Russia’s central bank shares similar hostility as the RBI, seeking a ban on the asset class.

Ultimately, Sankar claimed that cryptocurrencies could “wreck the currency system, the monetary authority, the banking system, and in general, government’s ability to control the economy.”

Last month, the International Monetary Fund called on El Salvador to remove Bitcoin as legal tender based on similar claims. They deemed it a threat to financial stability and market integrity.