According to Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar, Central Bank Digital Currencies (CBDC) might ‘kill’ the rationale for the existence of private cryptocurrencies.
While speaking at a webinar organised by the International Monetary Fund, Rabi Sankar said, “We (RBI) believe that CBDCs would actually be able to kill whatever little case there could be for private cryptocurrencies.”
Rabi Sankar underlined the RBI’s position that private currencies should not be permitted, “just because they are backed by hi-tech”.
The Deputy Governor highlighted, “Any tool that can be used for good can also be put to undesirable uses. Technology, at the end of the day, is a tool,” Understanding the limitations of technology is essential for controlling its integration into the economy and society so that people do not fall victim, Sankar said.
The central banker’s latest comments against private cryptocurrencies comes ahead of the publication of the government’s consultation document on cryptocurrencies.
Despite the Indian government’s failure to make its view on cryptocurrencies clear, the Reserve Bank of India (RBI) remains convinced that private cryptocurrencies constitute a threat to the financial system and will never be recognised as legal tender.
“A currency needs an issuer or it needs intrinsic value. Many cryptocurrencies which have neither are still being accepted at face value – not just by gullible investors but also by expert policymakers and academicians,” Rabi Sankar said.
“Most cryptocurrencies have an equilibrium value of exactly zero, but they are still priced sometimes at fantastical levels. But even where cryptocurrencies do have value, for example, come stablecoins that are pegged to a particular currency, their unquestioned acceptance seems puzzling to me.”
In this backdrop, Rabi Sankar urged the IMF to take the lead in shaping the narrative surrounding digital payment systems.
“Technology is evolving at an extremely rapid pace and I don’t believe every innovation is desirable. In this respect, I expect the IMF would take a leading role in clearing the narrative, be it CBDCs or cryptocurrencies.”
The RBI is currently developing its own CBDC, Rabi Sankar said on April 8.
Rabi Sankar, speaking about the state of digital payments in India, said that while the fraud was on the rise and required the RBI’s attention, the situation was not yet serious.
“For instance, 1 in 59,000 (digital) transactions was fraudulent in FY21. It has gone up to 1 in 30,000 in FY22. Roughly 75 paisa out of 1 lakh rupees (of digital transactions) in terms of value is fraudulent. It is not alarming, but it is something we need to plug right at this stage,” he said.