scorecardresearchAs RBI set to roll out CBDCs, can this be an ‘endgame’ for cryptos in India?

As RBI set to roll out CBDCs, can this be an ‘endgame’ for cryptos in India?

Updated: 08 Jul 2022, 10:50 AM IST
TL;DR.
RBI Deputy Governor T Rabi Sankar recently said the CBDCs could ‘kill’ the rationale for existence of private cryptocurrencies
RBI’s deputy governor T Rabi Sankar on Wednesday said that India’s CBDC will be rolled out this year in phases

RBI’s deputy governor T Rabi Sankar on Wednesday said that India’s CBDC will be rolled out this year in phases

Reserve Bank of India Deputy Governor T Rabi Sankar on Wednesday said Central Bank Digital Currencies (CBDC) will be rolled out this year. He also clarified that it would be rolled out in phases.

Barely a few days ago, Mr Sankar — at an IMF webinar — said the CBDCs could kill the rationale for existence of private cryptocurrencies.

“We believe that CBDCs would actually be able to kill whatever little case there could be for private cryptocurrencies,” Sankar was quoted as saying on June 2. “They have an equilibrium value of exactly zero. Despite this, they are priced at fantastical levels.” 

It is noteworthy to mention that the government is set to finalise a consultation paper on cryptos with inputs from all stakeholders.

These comments made by Deputy Governor, as expected, didn’t go down well with the industry experts one of who called these comments naïve.

IBC Capital founder Hitesh Malviya said, “RBI deputy governor should read more about cryptocurrencies and their different use cases. They also have other use cases apart from digital payments in areas such as Web3.0 platforms and other applications. So, I believe this is a naïve comment made on Sankar’s part.”

Crypto social media platform Taki’s cofounder Sakina Arsiwala said that cryptocurrencies can be used for different purposes, and CBDCs should also be interoperable across the Web3 ecosystem. “A true cryptocurrency, CBDCs included, should be interoperable with the rest of the crypto landscape,” Arsiwala said.

What are CBDCs?

CBDC would exactly be the same as fiat currency i.e., Indian rupee. The only difference would be that CBDC will be available in digital format. This would have the same worth as Indian rupee and would be convertible at par with physical currency as well.

The digital coin would have some merits over other digital payments systems since the payments using CBDCs would be final, bringing down the settlement risk in the banking and financial system.

At the same time, the CBDC would be different from other cryptocurrencies. It would have a backing of central bank unlike cryptocurrencies such as bitcoin and Ethereum.

It was in July 22, 2021 that RBI, for the first time, talked about the need to launch its own digital currency. It said the digital currency is desirable not only for the benefits of virtual currencies, but also for protecting the investors from massive price swings of cryptocurrencies.

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RBI announced the launch of digital currency last year.

Not only the RBI, but other central banks around the world, too, are geared to launch their respective digital coins. The European Central Bank, for instance, launched its digital euro project in July, and approved the initial phase that could lead to the launch of a virtual currency later in this decade.

In China, digital yuan has been around in numerous cities. The Bank of England and Federal Reserve are also exploring the possibilities of digital currency for their respective economies.

Regulator’s aversion to cryptos

RBI has for long been wary of bitcoins and other cryptocurrencies. An RBI circular in April 2018 had directed the banks not to deal in virtual currencies and not to provide any services to those who are dealing in them. However, the Supreme Court, in March 2020, lifted the RBI’s curbs, enabling banks to deal in cryptocurrencies.

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What is central bank digital currency?

In February 2020, the central bank said that the institutions in India should know the potential and risks linked to distributed ledger technology (or blockchain) to get the benefits of latest innovations in technology. 

Also, in January 2021, the RBI underscored the need for a digital currency, saying that it would look for ways to make the currency functional if the need for a digital currency came up.

 

First Published: 09 Jun 2022, 07:44 AM IST