The Reserve Bank of India (RBI) Intervenes in Currency Market to Prevent Volatility
The governor of the Reserve Bank of India (RBI), Shaktikanta Das, stated that the RBI intervenes in the currency market to prevent excess volatility in the exchange rate, without targeting a specific level for the rupee. He emphasized the need to fully understand the risks associated with cryptocurrency before legitimizing it. According to Das, emerging markets face spillover risks, and India has taken measures to build buffers against these risks.
Rising Dollar Causes Volatility in Global Currencies
The strengthening dollar, due to rising US interest rates, has led to increased volatility in global currencies. The Indian rupee closed at ₹83.2 against the dollar on Thursday, compared to ₹82.7 at the beginning of September. Das confirmed that the RBI intervenes in the currency market when necessary and called out the US for including India and other countries on a ‘Monitoring List’ for their currency practices.
Understanding Crypto Assets Before Legitimizing Them
Das expressed the need for a comprehensive understanding of crypto assets and stablecoins before they can be legitimized. He compared entering the crypto market without sufficient knowledge to swimming without knowing how many sharks are present in the water. He highlighted that currency is a sovereign function and private currencies can have significant consequences for domestic and global financial systems, including issues related to terror financing and money laundering.
Central Bank Digital Currency (CBDC) as the Future
Das stated that Central Bank Digital Currency (CBDC) will be the future and emphasized its importance for facilitating efficient cross-border transactions. While acknowledging that paper currency remains relevant, he revealed that active discussions are taking place between the RBI and other countries regarding CBDC implementation. Das also emphasized the need for every country to work on CBDCs.
Close Coordination between RBI and Government
Das highlighted the close coordination between the RBI and the government, stating that central banks have autonomy but still engage in conversations with the government. This collaboration has allowed for effective handling of inflation and crisis situations. He emphasized that conversation between monetary authorities and the government is crucial not only during crises but also during normal times.
Impact of Covid Measures on Inflation
Das mentioned that India’s measures to address the impact of COVID-19, both on the fiscal and monetary fronts, were targeted and calibrated. Unlike advanced economies, India did not experience excessive fiscal or monetary expansion, which helped keep inflation in check. He also noted that geopolitical events, such as the war in Ukraine, led to spikes in crude oil prices and other commodities, impacting India’s inflation rate.
Hot Take: RBI Governor Stresses Currency Market Intervention and Need for Understanding Crypto Risks
In a recent session, RBI Governor Shaktikanta Das emphasized the importance of currency market intervention by the central bank to prevent excess volatility in exchange rates. He called for a comprehensive understanding of risks associated with cryptocurrencies before their legitimization. Additionally, Das highlighted the significance of Central Bank Digital Currencies (CBDCs) for facilitating cross-border transactions. He stressed the need for close coordination between the RBI and the government, emphasizing that autonomy does not mean a lack of conversation. Lastly, he discussed how India’s targeted measures during COVID-19 helped control inflation compared to advanced economies.
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