Governor For Reserve Bank Of India Talks Bitcoin: Is Worrisome, Security Issues

Raghuram Rajan, who is the Governor for the Reserve Bank of India, spoke with Indian students in an hour long discussion put together by NDTV and hosted by Dr Prannoy Roy. Fielding questions from the audience, one student asked Rajan for his opinion on Bitcoin to which Rajan stated the security is an issue and that some features of Bitcoin are worrisome.

Student: My question is not exactly related to e-commerce but to the more important topic of Bitcoin.

Raghuram Rajan: Nothing more important than e-commerce.

Host: No, no, Bitcoin is fascinating.

Student: Reading your book Fault Lines, it comes out as you.. somebody who is not pro government intervention. Being from the Chicago school of thought, you propagate more free markets, so I want to know.. Bitcoin specifically has very good advantages for a developing nation. So I want to know what is your view as a regulator on free banking and having more equitable currencies floating in the market.

Raghuram Rajan: I think we're still watching the evolution of these kinds of currencies. One of the problems that we envisaged with Bitcoin.. one of course was security is an issue and you've seen they're not as secure as people thought they were and there has been stolen bitcoins and so on but the second issue was the fluctuation in value.

For money, you require something which is a stable store of value and something that fluctuates so much is less effective in use as money. There are some lessons to be learned from the technologies that Bitcoin has employed, some of them are useful, some of them are worrisome and we have to see how we take on-board such technologies.

I have no doubt that down the line we will be moving towards primarily a cashless society and we'll have some kinds of currencies like this which will be at work. For us as the Reserve Bank, this may happen maybe 10-15-20 years from now but we'll have to figure out how we make money because the way we generate most of our revenue is through forms of seigniorage, people are willing to hold currency free of interest and that's how we make money, but we'll figure that out. But I think that these virtual currencies will certainly get much better, much safer and over time will be the form of transaction, that's for sure.


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