Coin crash brings focus to digital assets’ ‘true value’: Rajan

“The idea that somehow cryptos are going to maintain value, while the fiat currencies collapse. That’s nonsense,” Rajan said on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland. “Fiat currencies have won out in terms of which is more credible,” he said
Raghuram Rajan
Raghuram Rajan

DAVOS, Switzerland: The collapse in the prices of digital assets over the past year will allow investors to focus on the “true value” of this new technology, the distributed ledger and the smart contracts that can be built on them, former Reserve Bank of India Governor Raghuram Rajan has said.

“The idea that somehow cryptos are going to maintain value, while the fiat currencies collapse. That’s nonsense,” Rajan said on the sidelines of the World Economic Forum’s annual meeting in Davos, Switzerland. “Fiat currencies have won out in terms of which is more credible,” he said.

The wider crypto market shrank by $1.4 trillion in 2022 with bitcoin losing 60% of its value. It has, however, clocked a 26% gain in January, leaping 22% in the past week alone, breaking back above the $20,000 level, putting it on course for its best month since October 2021.

Cryptocurrencies took a credibility hit in November when crypto exchange FTX, which was valued a year ago at $32 billion, filed for bankruptcy protection in November and US prosecutors accused its founder Bankman-Fried of orchestrating an “epic” fraud that may have cost investors, customers and lenders billions of dollars.

Rajan expects the US Federal Reserve to continue raising interest rates for now, while it looks for signs of any slack in the labour market.

“When you still have 200,000 jobs (being created) a month, it suggests that there’s still a way to go,” he said.

Shifting to OPS may lead to liability add-up in future

Meanwhile, as several state governments have shown their intent of shifting to the old pension scheme (OPS), the former RBI governor said states doing so, would end up curbing current expenditure but may build liabilities for the future. He also cautioned banks on tilting too much towards retail lending.

Rajan said the reason why the new pension scheme was adopted because in the old scheme, huge liabilities had built up.

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