The Reserve Bank of India is working towards a phased implementation strategy for its digital currency and, as such, is examining use cases where it can be deployed with little disruption. It is also looking at reducing currency costs for the government and to help offset the threat of virtual currencies.
T Rabi Sankar, RBI Deputy Governor, at a webinar organized by the Vidhi Centre for Legal Policy said developing their own Central Bank Digital Currency (CBDC) could provide the public with uses that any private virtual currency can provide and to that extent might retain the public preference for the rupee. “It could also protect the public from the abnormal level of volatility some of these virtual currencies experience.”
The deputy governor said RBI’s definition of CBDC is a digital form of sovereign currency that can be converted into cash or sovereign-backed deposits. “With this, India joins countries such as China, Russia and the UK, which have taken steps towards introducing CBDCs. Generally, countries have implemented specific purpose CBDCs in the wholesale and retail segments. Going forward after studying the impact of these models, launch of general purpose of CBDCs shall be evaluated.”
Sankar said conducting pilots on CBDC in wholesale and retail segments may be a possibility in the near future. “As is said, every idea will have to wait for its time. Perhaps the time for CBDCs is nigh.” In regards to the consequences of digital currencies on banks, the deputy governor said while it could reduce the need for maintaining deposits, the impact would be limited as they cannot pay interest. “Thus, potential costs of disintermediation mean it is important to design and implement CBDC in a way that makes the demand for CBDC, vis-à-vis bank deposits, manageable.”
Sankar lashed out at cryptocurrencies saying private virtual currencies sit at substantial odds to the historical concept of money. “They are not commodities or claims on commodities as they have no intrinsic value, some claims that they are akin to gold clearly seem opportunistic. For the most popular ones now, they do not represent any person’s debt or liabilities. There is no issuer. They are not money.”
The deputy governor said 86% of central banks were actively researching the potential of virtual currencies and 60% were already experimenting with the technology, and 14% are deploying pilot projects. Sankar said interest had spiked to replace paper and avoid the more damaging consequences of private currencies.