The Reserve Bank of India (RBI) is still investigating the issuance of a central bank digital currency, or CBDC.
T Rabi Sankar, deputy governor of RBI, said in a speech by the Vidhi Legal Policy Center that private digital currencies could be part of what ultimately makes CBDCs necessary. He believes the RBI, which is developing its own CBDC, could offer the general public many of the same uses as digital currencies like Bitcoin, while limiting the volatility of the average user. He stated:
“This could indeed be a key factor in leading central banks to view CBDC as a safe and stable form of digital currency…. So the case of emerging market CBDCs is clear – CBDCs are not only desirable because of the benefits they create in the payment system, but may also be necessary to protect the public in a volatile private VC environment. “
Sankar went on to say that RBI is currently reviewing a phased implementation strategy and considering cases where a CBDC could be put into practice with little or no disruption to the bank’s status quo. The official outlined a number of issues that need to be considered before actually considering CBDC implementation. He advises that careful consideration must be given to how retail payments or payments are made between consumers and businesses. Security issues, including permissive anonymity of users, are also up for debate.
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Of the issues mentioned, Sankar appears to be most interested in undermining the oversight and authority of central banks. He stressed that traditional financial institutions could lose their role as trustworthy third parties if individual users were given the opportunity to conduct reliable transactions for themselves. A supposedly legitimate fear when Bitcoin inventor Satoshi Nakamoto publicly invented blockchain technology to end the restriction he believed banks were unnecessarily embroiled in.
People who do business without intermediaries can also limit banks’ ability to lend their customers, according to Sankar. However, in his statement, the official does not acknowledge the many decentralized lending options that the DeFi community has come up with – some of which have been successfully implemented.
Sankar says that while there is a lot of research, it may not be long before pilots are up and running in both retail and wholesale markets:
“The setup requires careful calibration and a nuanced approach to implementation. It is important to consider the drawing board and consult with those involved. Technological challenges are also important. As I said, every idea has to wait for its time. Perhaps the time for CBDCs will be soon. “
CBDCs have gained a lot of traction over the past year. South Korea recently selected a blockchain subsidiary of a local internet company as a technology supplier for their digital pilot tests. Bank of Canada staff also published a study detailing the potential benefits of CBDCs. They point out a number of problems, including the elimination of transaction fees for debit and credit cards and the inherent possibilities for programmable currencies. In the United States, the chairman of the Federal Reserve said that CBDCs could reduce the number of cryptocurrencies put on the market.