Ahead of the government coming out with a consultation paper on cryptocurrencies, Reserve Bank Deputy Governor T Rabi Sankar on Thursday said the soon-to-be-introduced central bank digital currencies (CBDCs) can “kill” whatever little case that exists for private virtual currencies like Bitcoin.
Sankar also attacked ‘stable coins' which are pegged to a particular currency.
The RBI has been vehemently opposed to cryptocurrencies like Bitcoin, saying there is no underlying value for such instruments which are essentially speculative in nature. It has gone public with the same, even as the government has yet to make its stance clear.
Earlier this week, the Department of Economic Affairs in the Ministry of Finance had said it will soon be coming out with a paper on such private cryptocurrencies.
“…we believe that CBDCs could actually be able to kill whatever little case that could be for private cryptocurrencies,” Sankar said while speaking at a seminar organised by the IMF.
He said the RBI has been working “methodically” to introduce a digital version of the fiat rupee and sees advantages like better currency management, reducing settlement risk in the system especially the interbank system, and as the best solution to cross-border payments.
The RBI approach is a measured one as there is hardly any international experience in case of CBDCs and their impact on the banking system in terms of banks' ability to mobilise deposits, as well as impact on monetary policy transmission.
“We will go through the process of proofs of concept, then pilots and then a stage-wise introduction. We intend to learn as we go, as all of us realise the digital journey is precisely that, it's a journey that never has an end,” he said.
Sankar added that a government and regulator-led process with the right vision and implementation can achieve social objectives more effectively.
At a time when advocates of cryptocurrencies have been batting for ‘stable coins' which are linked to regulated currencies, Sankar said their “unquestioned acceptance” seems “puzzling”.
“Yes, I've heard repeated central bankers trying to justify private currencies by arguing that we have changed, we actually have private money largely in the system. Now I'm sure they understand the difference between money and currency,” he said.
Meanwhile, Sankar appealed to the IMF to take the lead in structuring the narratives around digital payment systems given the rapid changes in technology.
“I don't think everything that is happening is desirable or happening in the way it should. It is important that many countries understand these technologies while taking their policy decisions.
“In this respect, I would expect the IMF will take a leading role in clearing the narrative, whether it's in respect of CBDCs or cryptocurrencies,” he said.
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