At a gathering hosted by the Indian Banks’ Association on Friday, Reserve Bank of India (RBI) Deputy Governor T. Rabi Sankar discussed cryptocurrencies and central bank digital currency (CBDC) (IBA).
“We saw an environment where private currencies were evolving. We realized that this poses a threat to investors, systems, and the economy. We also realized that private currencies have shown that digitalizing currency can possibly benefit,” the RBI official said. “The way to deal with it was to provide a digital currency.”
Referring to non-government-issued cryptocurrencies, including bitcoin and ether, as “private” cryptocurrencies, the deputy governor opined:
If there is anything that a private cryptocurrency can do, we should be able to create a product that will do that without the associated risks in a safer format in fiat money backed by the government and issued by the central bank. This is essentially what we are doing in the CBDC experiments.
On December 1, eight banks joined the RBI in launching the first retail central bank digital currency (CBDC) trial. 13 cities across India will eventually be covered by the experiment. The RBI’s wholesale CBDC pilot, which started on November 1 for the trading of government bonds, was followed by the retail digital rupee experiment. Later on, the wholesale pilot will be expanded to include more use cases, including those involving money market instruments.
The initial CBDC pilots, according to the Indian central banker, are intended to guarantee the effectiveness of all systems. He explained:
As we go along, the pilots will focus on identifying the right technology on the right architecture for distribution of digital currency. There are potentially game-changing choices available, particularly in the area of cross-border transactions. There are a huge amount of inefficiencies in this process that the CBDC can take care of.
Meanwhile, the RBI believes that cryptocurrencies, such as bitcoin and ether, should be completely banned. Sankar said in February, “It would be futile to regulate cryptocurrencies,” warning that crypto products “are fundamentally designed to bypass the established financial system, and on a larger scale government itself.”
