While speaking at a webinar organized by the International Monetary Fund, the Reserve Bank of India (RBI) deputy governor T Rabi Sankar stated that CBDCs could kill the reasons for the existence of private crypto.
“We (RBI) believe that CBDCs would actually be able to kill whatever little case there could be for private cryptocurrencies,” Rabi Sankar noted.
According to a Business Today report, private currencies should not be permitted “just because they are backed by hi-tech,” Rabi Sankar stated reaffirming RBI’s stance.
“Any tool that can be put to good use can also be used for undesirable uses. Technology, at the end of the day, is a tool,” Rabi Sankar added.
The RBI deputy governor noted that knowing its limitations was critical in regulating how it was incorporated into the economy and society so that people would not fall victim to the hype that technology can establish a currency.
Sankar’s statements came ahead of the launch of India’s cryptocurrency consultation paper. The government officials consulted the domestic institutional stakeholders, World Bank and the IMF for the cryptocurrency consultation papers.
Although the Indian government has so far not made a clear stance on cryptocurrency, RBI has been adamant that private cryptocurrencies are a threat to the financial system and would never be legal tender.
Sankar says “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.”
He further 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 stablecoins that are pegged to a particular currency, their unquestioned acceptance seems puzzling to me.”
Rabi Sankar urged the IMF to take the lead in defining the narrative around digital payment systems in this context.
He noted “Technology is evolving at an extremely rapidly 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.”
In April, the RBI deputy governor stated that the threats created by stablecoins are the factor behind the need for CBDCs. Three days back, the RBI announced plans for a graded approach towards the launch of the CBDCs.
Rabi Sankar, speaking about the state of digital payments in India, said that while fraud was on the rise and requiring the RBI’s attention, the condition was not yet worrisome.
Rabi Sankar stated “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”.