The government is promoting a central bank digital currency (CBDC) as a cost-effective payment solution. However, this may not address the Reserve Bank of India’s (RBI) concerns about private cryptocurrency, as they pose risks to macroeconomic stability. Two officials, who wished to remain anonymous, said this was highlighted by the International Monetary Fund and Financial Stability Board’s synthesis paper in September, which proposed a minimum threshold for regulation.
The first official said the paper does not prevent any country from imposing higher restrictions, including a complete ban. The government and financial sector regulators, including the RBI, are currently assessing the issue.
The second official noted that a CBDC is more eco-friendly than cryptocurrency, as its energy requirement depends on its underlying technological stack. He explained that no mining is required for CBDCs, as they can be issued by either a sovereign or a central bank by converting the bank’s existing balances to CBDC balances.
RBI Governor Shaktikanta Das recently acknowledged the serious threat to financial stability posed by cryptocurrency, particularly to emerging economies. He asked believers of regulation how it should be regulated, and what the definition of cryptocurrency is. He concluded that everybody needs to understand the risks and manage them carefully.
The RBI has launched a digital rupee to revolutionise the financial technology sector. This is expected to create new opportunities and reduce the burden of handling, printing, and logistics management of cash.
A cryptocurrency is not a commodity and has no intrinsic value. It is designed to bypass the existing and regulated intermediation and control arrangements, which are necessary to ensure the integrity and stability of the monetary and financial ecosystem. Furthermore, it is being used for terror funding, money laundering, and tax evasion.
Finally, Das said the G20 leadership has welcomed the synthesis paper, as it is a good starting point to understand the risks and possible solutions. He concluded that innovation should serve a public purpose and not be stifled.