In announcing the bi-monthly monetary policy results, Das cautioned investors by citing the ‘tulip frenzy’ of the 17th century – widely regarded as the first financial bubble.
The RBI governor said that investors should remember that cryptocurrencies have no basis, not even tulips.
The central bank has always maintained a strong stance against private digital currencies. It prohibited the banking system from assisting such trades, which was struck down by the Supreme Court in 2020.
Das said it is his “duty” to caution investors, and asked them to keep in mind that they are investing at their own risk.
What is ‘Tulip Frenzy’
The ‘tulip frenzy’ of the 17th century is often cited as a classic example of a financial bubble, where the price of something rises, not because of its intrinsic value, but because of speculators making a profit by selling a bulb of foreign want. Flower.
This is also known as the Dutch tulip market bubble and occurred in Holland in the mid-1600s. This was one of the most famous market bubbles and crashes of all time.
Speculation pushed up the value of tulip bulbs and they traded at a largely high price.
In today’s context, it serves as a parable for the pitfalls that can lead to excessive speculation.
Cryptocurrencies are said to be originated or ‘mined’ using complex algorithms built on a blockchain platform, but critics say it lacks the ‘value’ of fiat tender whose supply is regulated.
After a program is mined, units of cryptocurrencies are traded in secondary markets where their value has been very volatile.
Hence, the RBI governor used this illustration to caution investors.
‘Makingly progressing to introduce digital currency’
Shaktikanta Das said that the central bank does not want to rush and is carefully examining all aspects before introducing the Central Bank Digital Currency (CBDC).
However, he declined to give any timeline for the launch of the CBDC.
Das said in a post, “This (CBDC) is something we don’t want to rush. We are carefully and carefully scrutinizing and proceeding as there are many risks. The biggest risk is cyber security and counterfeiting.” is related to probability.” Policy presser.
In her Budget 2022-23 speech, Finance Minister Nirmala Sitharaman had announced that RBI will introduce a digital currency in the next financial year starting April 2022 to boost the digital economy and more efficient currency management.
(with inputs from agencies)
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