Cryptocurrencies have a future, may become effective means of payment: Rajan – Mint

Cryptocurrencies have a potential future and even though they have fluctuating values, these digital assets might find a way to become an effective means of payment, Raghuram Rajan, former Reserve Bank of India governor, told the Reuters Global Markets Forum.

The former chief economist for the International Monetary Fund (IMF) was more positive on well-regulated stablecoins. At the same time, he called for quick appropriate regulations for stablecoins.

A stablecoin is a digital currency that is linked to an underlying asset, such as a national currency like the US dollar or a precious metal like gold.

According to the Reuters report, Rajan was, however, not clear on the fundamentals that were driving the valuations of cryptocurrencies.

Right now, in this heady environment with asset prices really picking up, many cryptos are also being valued not so much as a means of payments but as assets in their own right," Rajan, who is professor of finance at the University of Chicago Booth School of Business, told Reuters.

Even in India, crypto currency exchanges are urging the government to define cryptocurrencies as digital assets and not as currency. As per industry experts, this would help the government address all its legitimate concerns with regards to financial risks associated with crypto.

Meanwhile, finance minister Nirmala Sitharaman said that the legislation on cryptocurrencies is awaiting Cabinet approval.

Rajan in his interaction with Reuters opined that some cryptocurrencies might find a way to become an effective means of payment despite their fluctuating values.

Cross border payments are one area which is wide open, because of the huge transaction costs of making cross border payments," he said.

In India, growth-wise, the crypto industry has grown from four-five million people in 2018 to 15-20 million investors now with more than $1.5 billion invested. This has in part been driven by the superlative returns given by cryptocurrencies such as bitcoin, ether and dogecoin over the past three years.

Rajan believes that for cryptocurrency prices to keep on rising, these digital assets will need to find a proper use case.

I think the value of cryptos has to be seen more in terms of are they going to be useful in the system going forward. Yes, some of them have value because they have value, and maybe that will persist. I'm not going to say that bitcoin is going to implode tomorrow. But I will say that I would be much more confident about the value of these cryptos once they find proper use cases, and the technology is evolving to make that happen," he said.

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Cryptocurrencies have a future, may become effective means of payment: Rajan - Mint