Betting on India’s impending launch of CBDC, T Rabi Sankar, Deputy Governor of the nation’s central bank, the Reserve Bank of India (RBI), dismissed the idea that stablecoins should be accepted as 1-to-1 fiat-pegged cryptocurrencies.
CBDCs Can Kill Crypto
“We believe that central bank digital currencies (CBDCs) could actually be able to kill whatever little case that could be for private cryptocurrencies,” he said.
The RBI Deputy Governor shared these thoughts at a recent IMF webinar titled “At the Frontier: India’s Digital Payment System and Beyond.” He also asked the IMF to play a leading role in clearing the air about cryptocurrencies and CBDCs, media reports said.
“Technology is evolving at an extremely rapidly 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,” he said.
India plans to introduce its CBDC in the current fiscal through a graded approach, ensuring little to no disruption to the existing currency and payments systems. Simultaneously, the nation’s Finance Ministry is preparing a consultation paper for suggestions and opinions from the public on potential crypto regulation.
Comparison With UPI
Making a comparison between India’s fiat-based inter-bank peer-to-peer payment system Unified Payments Interface (UPI) and blockchain technology, Rabi Sankar said blockchain use cases had not been established at the speed they were initially promised.
He said, “One of the reasons it [UPI] is so successful is because it’s simple…Blockchain, which was introduced six-eight years before UPI started, even today is being referred to as a potentially revolutionary technology. [Blockchain] use cases haven’t really been established that much at the speed it was initially hoped for.”
Introduced in 2016, UPI processed over 5 billion transactions in a month while overall transaction value crossed the $1 trillion mark in March 2022 and neared $6 billion in May 2022. It has recorded an average adoption and transaction growth rate of 160% over the last five years.
Technology is Only a Tool
The central banker also asserted that banks will continue to play a crucial role in providing liquidity services to the people in India. They should not fall prey to the hype that technology can create a currency. After all, it’s a tool, and it can be misused also, he cautioned.
“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,” the senior RBI executive cautioned.
A currency needs an issuer, or it needs intrinsic value. Many cryptocurrencies, which are neither, are still being accepted at face value, he added.