RBI governor Raghuram Rajan has yet again raised further questions about the stability of Bitcoin, but also said that he doesn’t want to outright ignore it or say that it doesn’t have a future. He said that for now RBI has only expressed its concerns about it, without determining what it intends to do, reports TechCrunch.
RBI had earlier said that it does not intend to regulate virtual currencies in India, that being the case, it’s not clear what the governor intends to do going forward – he doesn’t want to ban it, he doesn’t want to regulate it, he doesn’t want to ignore it and he doesn’t want people to use it because of the risks.
With the latest statement he has however, answered one of the questions raised in a letter sent to the RBI earlier this year on the state of Bitcoin in India. Rajan has made it clear that he considers it to be a currency and has expressed his concerns over regulating it. “We had put out a cautionary advisory explaining some of the concerns that investors and users of Bitcoin should have, without in anyway saying anything about our future course of action. As a currency, I do worry a little bit when the underlying fluctuates tremendously,” Rajan said.
He does have a point, when he talks about the volatility of Bitcoin, as its value has fluctuated a lot in the past six months. Its price shot up to $1,200 after a positive nod from US government, but sank to an all time low of $554 when China raised questions and banned its use as currency, the currency regained some value within a month, but has now lost it all again due to issues at Bitcoin Exchange MtGox, which has also revealed flaws in Bitcoin architecture.
What he has not mentioned is the fact that backing of governmental agencies like the RBI can reduce the fluctuation in the value of virtual currencies. Most of the fluctuation as of now is due to uncertainty and bugs that have been discovered. If governments start pooling in their resources to make the currency stronger it will not be a factor to worry about in the long term.
As I’ve written before, instead of trying to regulate the currency, RBI should help strengthen the currency by being a part of the Bitcoin ecosystem. It needs to set up guidelines around operation of Bitcoin exchanges and mining instead of trying to put the sort of control it has over Rupee on Bitcoin.
It is interesting to note that he did not bring up issues such as money laundering which was the excuse used by Enforcement Directorate when they raided several Bitcoin companies in India.