Cryptocurrencies appear to be “regulatory arbitrage” and not true financial innovation, said Chief Economic Adviser V Anantha Nageswaran on Thursday, reiterating doubts expressed by other authorities about the digital assets.

“I would reserve judgment on whether it is truly innovative or truly disruptive in a positive sense. Or is it something we will come to regret?” Nageswaran said at the International Fintech Festival hosted by industry lobby ASSOCHAM.

Nageswaran said the finance Ministry and the Reserve Bank of India were in agreement about the digital assets. “Much of what is happening in the space of cryptos or decentralised finance – and I completely endorse what Rabi Sankar, (RBI Deputy Governor) has been saying – as of now they do appear to be a case of regulatory arbitrage rather than a case of true financial innovation in my opinion.”

“I often wonder when financial markets and monetary policy become restricted, and higher interest rates are available from traditional instruments, whether these kinds of innovations will thrive or not.” He also recalled the recent crash of stable coins such as Terra (LUNA) and TerraUSD.

“If it's something that's going to be a source of value alternative to fiat currencies, it has to satisfy many purposes, and it must have widespread accessibility. In all these cases Crypto or decentralized finance has yet to pass the test,” Nageswaran added. He also underlined the risks associated with data privacy, consumer protection, and financial stability with new disruptions in the financial landscape.

The Finance Ministry is expected to bring out a consultation paper on cryptocurrency soon. However, after that, the chances of bringing in the cryptocurrency regulation bill still remain slim. The bill has been pending to be introduced in Parliament since Budget Session 2021.

Finance Minister Nirmala Sitharaman has said that wider consultations are needed among nations before regulations can be put in place, though the sector is taxed in India.