Former Reserve Bank of India Governor Compares Cryptocurrency to ‘Chit Funds’, Says Majority of Coins Will Not Survive

Vinod Dsouza
Reserve Bank of India Governor Raghuram Rajan
Source: nytimes

Raghuram Rajan, the former Governor of the Reserve Bank of India (RBI) compared cryptocurrencies to Chit Funds. During an interview with CNBC-TV18, Rajan revealed that he believes only a handful of cryptocurrencies will survive in the long run.

His statements come at a when when Coinospy, a website that tracks the number of dead coins reported that 2,094 cryptos have gone bust. The coins which vanished had good fanfare previously but despite all that, failed to survive in the market.

The ex RBI Governor also compared the crypto craze to the Tulip Mania in the Netherlands during the 17th century. Farmers grew Tulips with the hope of earning better returns only to see the bubble burst as months passed.

“Do we really need 6,000 cryptocurrencies to do payments? One or two, may be a handful, that is going to survive to be used for payments even if the technology is so useful that it is a substitute for cash and currency. That would suggest that most cryptos are unlikely to survive with high values going forward,” Rajan told CNBC-TV18.

His remarks come at a time when the Indian Government listed for introduction in Parliament a Bill to regulate cryptocurrencies. India has the highest number of crypto investors in the world with more than 100 million people investing in it.

Latest media reports state that the Government is planning to ban all private cryptocurrencies. RBI could also launch its own digital coin.

What Is Chit Funds? Is it Similar to Cryptocurrency?

Chit Fund usually means a group of people coming together and forming a decentralized investment. Mostly friends, relatives, neighbours or communities come together and invest informally as monthly savings. Countries such as India, Pakistan, Sri Lanka and Bangladesh follow this practice.

However, this form of savings is not endorsed by the Indian Government and the Reserve Bank of India. Investors are left at their own mercy if they lose their money through these Chit Fund schemes. Stories of people losing money through Chit Funds are a never-ending tale which equally compensates to stories about people making money through it.

The RBI regularly warns people about the nuisance of chit funds but people invest in it for earning higher returns. Nonetheless, only the lower-middle class and the lower class segment invest in Chit Funds across India.