The former chief economic advisor Krishnamurthy Subramanian today said that it is unlikely that the central bank digital currency (or better known as CBDC) will be a very large part of the broad money in the economy.
Subramanian was speaking on ‘Crypto Assets and Global: The Macroeconomic View’ at the Business Today Crypto Conclave. “The fear of losing monetary policy independence has to be seen in this context” he said.
Subramanian, who was CEA between December 2018 to December 2021, explained that the CBDC will be part of the narrow money ( existing physical currency ) and not part of the broad money (bank money or deposits ).
“I think we have to be very careful because when you are talking about monetary policy, we are actually talking about the broad money. Broad money is created when bank give out loans,” said Subramanian, who teaches at the Indian School of Business.
On the question of central bank giving interest on CBDC, Subramanian said that CBDC , whenever it comes , will be part of narrow money. “This is what is my understanding. Therefore, it should be similar to existing currency. You don’t earn interest on the currency today,” he reasoned.
He also said the success or failure of the CBDC will critically depend on how secure or robust it is created. “The temptation will certainly be there to play around with it,” the ex-CEA cautioned.