Former RBI Governor D Subbarao said on Monday that there is strong motivation for the central bank to launch a digital currency and that cash will coexist with new age currency. Speaking to an event hosted virtually by the economic think tank NCAER, Subbarao further said that cybersecurity was also one of the downside risks of the central bank’s digital currency (CBDC).
“There is a strong motivation for the RBI to launch CBDC … Cash will coexist with CBDC,” he said.
The former RBI governor also noted that privacy will also be a big issue when the RBI launches digital currency.
Recently, RBI Deputy Governor T Rabi Sankar said the central bank was working on a phased implementation strategy for its own digital currency and was rolling it out in the wholesale and retail segments in near future.
He also said that the idea for the central bank digital currency (CBDC) was ripe and that many central banks around the world were working on it.
While observing that if the RBI launches CBDC, the central bank’s control over the money supply will be weakened, Subbarao said there was also a problem of financial instability.
Responding to a question on cryptocurrencies, Subbarao warned that cryptocurrencies could become a way to withdraw money from countries like India and China.
“There is certainly a case for regulating cryptocurrencies. These cryptocurrency assets can be used for money laundering,” he said.
Subbarao, however, noted that cryptocurrencies are here to stay as speculative assets.
In India, a high-level inter-ministerial committee formed by the Ministry of Finance reviewed the policy and legal frameworks and recommended the introduction of the CBDC as a digital form of fiat currency in the country.
Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds, operating independently of a central bank.