The Reserve Bank of India, or RBI, continues to investigate the issuance of a central bank digital currency, or CBDC.
RBI Vice Governor T Rabbi Shankar said in a speech organized by Vidhi Center for Legal Policy that private digital currencies could be part of what makes CBDCs ultimately necessary. He felt that the RBI’s development of its own CBDC could give the public multiple uses of digital currencies similar to bitcoin, while limiting the volatility risk of the average user. He said:
“Indeed, this may be the major factor driving central banks to consider CBDCs as a safe and stable form of digital currency…. So the case for CBDCs for emerging economies is clear – CBDCs are not only used by them in payment systems but also in payment systems.” are desirable for the benefits generated, but may also be necessary to protect the general public in an environment of volatile private VCs.”
Shankar further said that the RBI is currently looking for a phased implementation strategy and is examining cases where CBDCs can be placed in the status quo of the bank with little or no disruption. The official detailed a number of issues that would need to be addressed before the implementation of a CBDC could actually be considered. He noted the need for careful consideration of how retail payments, or payments between consumers and businesses, would be arranged. Security issues were also debated, including the degree of anonymity allowed to the user.
Of the problems mentioned, Shankar seemed more concerned about central bank supervision and overthrowing authority. He emphasized that traditional financial institutions could lose their role as trusted third parties if individual users were able to transact without trusting themselves. An arguably legitimate fear, given that bitcoin creator Satoshi Nakamoto openly posed as a way to strangle blockchain technology, he felt that banks unnecessarily rejoiced in regards to arbitrage.
According to Shankar, transacting without a middleman can also reduce the bank’s ability to issue credit to customers. However, in his statement, the official did not recognize the many options for decentralized credit issuance that the DeFi community has planned – some of which have already been successfully implemented.
Shankar said that while there is more research to be done, pilot projects in the retail and wholesale markets may not take long to get the momentum going:
“The setup will require careful calibration and a differentiated approach to implementation. Clipboard considerations and stakeholder consultation are important. Technical challenges are also important. As already stated, every idea will have to wait its own time. Perhaps CBDC time is near.”
The CBDC got a lot of strength last year. South Korea recently selected a blockchain subsidiary of a local internet company as a technology provider for pilot trials of its Digital Won. Bank of Canada staff members also released a study detailing the potential benefits of CBDCs. He noted a number of benefits, including the elimination of transaction fees on debit and credit cards, and the inherent possibilities of programmable currency. In the US, the chairman of the Federal Reserve has said that CBDCs could reduce the number of cryptocurrencies issued.
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