A week after budget 2022-23 proposed 30 per cent tax on gains made from
cryptocurrency trades, Reserve Bank of India (RBI) governor Shaktikanta Das termed it as a "threat to macroeconomic and financial stability".
• Announcing the bi-monthly monetary policy outcome, Das cautioned investors by
invoking the 17th century 'tulip mania' -- which is widely considered to be the first
financial bubble.
• The RBI governor said that investors must remember that cryptocurrencies have no
underlying, not even a tulip.
• The central bank has always maintained a strong stance against private digital
currencies. It had banned the banking system from aiding such trades, which was
struck down by the Supreme Court in 2020.
• Cryptocurrencies are said to originate or 'mined' using complex algorithms built on
the blockchain platform but critics say it lacks the 'value' of legal tender whose
supply is regulated.
• The 'tulip mania' of the 17th century is often cited as a classic example of a financial
bubble where the price of something goes up, not due to its intrinsic value but
because of speculators wanting to make a profit by selling a bulb of the exotic
flower.
• It is also known as the Dutch tulip market bubble and occurred in Holland during
early to mid 1600s. It was one of the most famous market bubbles and crashes of all
times.
• Speculations drove up the value of tulip bulbs and they traded for an extensively
higher price.
• In today's context, it serves as a parable for the pitfalls that excessive speculation
can lead to.