According to Raghuram Rajan, an economist and former governor of India’s central bank, cryptocurrency as a speculative asset class has received its “comeuppance.”
At the World Economic Forum’s annual meeting on Tuesday in Davos, Switzerland, he told a news publishing house that the technology that powers cryptocurrency does not necessarily need to be punished as well. Rather, regulators should be wary of bans that could stifle innovation.
Following a historic bull market that swiftly descended into the worst crypto winter on record, the sector made a sensation in Davos last May. Rajan appeared to concur with the majority of cryptocurrency supporters and businesses present at the event in the Swiss town this year, who are already attempting to shift the emphasis toward advancing blockchain technology in the wake of a number of notoriety-grabbing failures like the infamous collapse of Sam Bankman-Fried’s cryptocurrency exchange, FTX.
According to him, the idea of developing an inflation-resistant “alternative to fiat money” that would stop central banks from “flooding the world with phony money” has been pursued by the cryptocurrency sector for far too long.
In Rajan’s opinion, the difficulty also stemmed from decentralization proponents who said that every ledger of transactions needed to be decentralized and that this could be accomplished without putting “confidence” in money produced and supported by a central bank.
“Turns out you can’t really do it, and you always depend on some central party,”
Rajan noted that the sector should concentrate more on use cases like enhancing cross-border transactions, particularly if nations begin to disagree strongly.
According to Rajan, the future of cryptocurrency may rest on its capacity to reject the narrative of mistrust toward central banks and discover means of coexistence.
That implies that regulators must also get along. For instance, Rajan argued that when central banks issue digital versions of sovereign currencies, they should not seek to “displace the private sector.” He continued by saying that central bank digital currencies should provide a public platform on which the private sector can function rather than compete with it.
Discussions about crypto in Davos showed that the industry believed regulators might also need to reevaluate their approach and stop obsessing over how crypto threatens financial stability. However, this concern turned out to be moot because the many crypto bankruptcies last year failed to spread to broader economies, making it unnecessary for regulators to shift their focus in order to improve consumer protection. According to Rajan, innovation almost always results in some poor choices and failures, but this does not imply that new advancements must be stopped.
On the other hand, the Vice-Prime Minister of Ukraine, Mykhailo Fedorov, expressed his opinion that the country should strive to be the finest jurisdiction for crypto assets and that he intends to be paid in the E-Hryvnia, the nation’s upcoming central bank digital currency (CBDC). He further said that he would like to receive his salary in the E-Hryvnia.