CBDCs Could Kill Reasons For Existence Of Cryptocurrencies: RBI Deputy Governor

Reserve Bank of India Deputy Governor T Rabi Sankar on Thursday (June 2) said that the central bank digital currencies (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. Any tool that can be used for good can also be put to undesirable uses. Technology, at the end of the day, is a tool,” Sankar was quoted as saying by Moneycontrol while speaking at a webinar organised by the International Monetary Fund (IMF).

Saying that private currencies should not be allowed just because they are backed by ‘hi-tech’, Sankar said it is crucial to understand the limitations of technology for its infusion into the economy so that people do not fall “prey to the hype that technology can create a currency”.

As if reiterating the central bank’s tough stance towards cryptocurrencies, Shankar said they have an “equilibrium value of ‘exactly zero”. Despite this, they are priced at ‘fantastical levels’, he added. 

Shankar also slammed stablecoins saying, “But even where cryptocurrencies do have value, for example stablecoins that are pegged to a particular currency, their unquestioned acceptance seems puzzling to me.”

He also urged the IMF to take a leading role in framing the narrative around virtual digital assets (VDAs). “Technology is evolving at an extremely rapid pace and I don’t believe every innovation is desirable. In this respect I expect the IMF would take a leading role in clearing the narrative, be it CBDCs or cryptocurrencies”, added Sankar.

The statement comes at a time when the RBI is gearing up for pilot testing of its CBDC. In its annual report for 2021-22, RBI said that it would implement its plans for CBDC in a graded manner and is eyeing its launch in fiscal 2022-23. 

Commenting on this, Sankar said, “RBI has been working methodically to introduce a digital version of the fiat rupee and sees advantages such as better currency management, reducing settlement risk in the system, and as the best solution to cross-border payments.”

“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 added during the webinar.

The RBI’s top brass is opposed to cryptocurrencies and has been openly critical about them. In May, RBI Governor Shaktikanta Das had said that VDAs had no underlying value. 

Last month, RBI officials reportedly told the Parliamentary Standing Committee on Finance that cryptocurrencies could lead to the dollarisation of a part of the Indian economy.

On the other hand, the Centre has not publicly expressed its stance about cryptos but has raised concerns over the use of blockchain. Finance Minister Nirmala Sitharaman earlier said that blockchain technology, which forms the core of cryptocurrencies, could be manipulated and used for terror financing activities. 

Amidst all these, the crypto startup ecosystem in the country continues to gather steam. As per an Inc42 report, India had more than 350 blockchain startups in 2021 and saw venture capital (VC) investments worth $247 Mn into the sector.