Eminent economist and former RBI governor Raghuram Rajan has said cryptocurrencies are a speculative asset right now, and will remain so until there are developments, and regulations emerge.
“Right now, cryptocurrencies are speculative assets. Will it stay that way? No. There will be developments. Some central banks are thinking of introducing their own cryptocurrency, backed by full faith and credit of the government,” Rajan, a professor of finance at the University of Chicago’s Booth School of Business, said at a clubhouse interaction hosted by telecom innovator Sam Pitroda on Friday.
“It is a good technology, but I don’t think it will be a substitute for normal currency,” he said, adding that they will have a market as long as there are fans who trade them with each other.
Cryptocurrencies, Rajan said, we’re looking for an application, and people were making claims on what and how they can do things more efficiently. “But right now, we still don’t have a really effective application. No doubt something will come down the line. In the meantime, I think people are valuing cryptos as an asset, bitcoin being the foremost of these. These things are not very effective in making payments yet, certainly not the bitcoin variety.”
There are other currencies, he said, with their ability to make micropayments at a low cost, like pay every time one reads an article. These payments could be costly in dollars, but cheaper in cryptos. “Some of these may come about and may revolutionize payments, but we are not there yet,” he said, and added: “I would not close the door on cryptos.”
The former RBI governor said the notion that cryptocurrencies are more reliable than fiat currencies was a little overstretched. There is a limited supply of bitcoins, but that does not give them any value, he said, just as, he added in a lighter vein, the limited number of drawings in his possession need not bring any value.
The steep fluctuations in the value of bitcoins make them very unlikely as a source of payments. “We will have to wait for some stable coins. But with stable coins, the problem is we will not know what their true value is, even with some of the more prominent stable coins they are not well-regulated. We don’t know the underlying asset that backs the value of those stable coins. So yet again, it makes it harder to use them widely as a means of payment,” the former RBI governor said.
Cryptos will have a market at some point when a breakout technology emerges. “But we are not there yet,” he added.
Pitroda said cryptocurrencies can never command a mass appeal. They are, he said, energy-intensive, and a great environmental concern. No currency, he said, will have mass appeal unless and until government-backed stability comes about.
There is a lot of hype, Pitroda said and added: “I don’t think it will replace the normal rupee, dollar, or Euro. We can wait. The jury is still out.”