RBI Deputy Governor T. Rabi Sankar said a “careful” and “calibrated” approach is required for India’s first central bank digital currency, or CBDC. Senior RBI official He said that this is necessary because the new currency will have different effects on the economy and monetary policy. RBI has plans to come up with its own CBDC by 2022-23, using blockchain technology.
“Given the large number of uncertainties as to which model works, and which design works well in terms of its impact on the banking system, on data privacy in monetary policy, I think most Banks “And we are no exception, potentially going in in a very precise and calibrated way,” he said at an event organized by ICRIER on Thursday.
Noting that one of the principles for introducing any technologies, especially for a central bank, is that it should “cause no harm,” he said, “I think central banks are going to work on it in a very gradual and calculated way, assessing the impact along the line and then making those links with What is needed most.”
On the implications of CBDCs, he said, “While these drivers are there, one must recognize that global experience is virtually non-existent at this point in time on some things like CBDCs that might impact the banking system.” He said that the demand for deposits in the banking system.
“To the extent that occurs, deposit creation will be adversely affected and to that extent the ability to create credit by the banking system is also reduced… To the extent that low-cost transactional deposits move away from the banking system, the average cost of deposits may rise which will lead to Overall, it leads to a slight upward pressure on the cost of funds in the system itself.”
Speaking about the RBI Deputy Governor’s comments on CBDCs, Harish Prasad, Head of Banking at FIS, said that it is clear that the RBI is trying to create a delicate balance on the proposed CBDC taking into account various considerations.
Among these risks is the risk that the central bank could pose to the central bank on demand deposits within the banking system today, that is, if people preferred to hold digital currencies over demand deposits with banks. This could have a far-reaching impact on the functioning of the banking system as well as on the cost of funds and it is critical that this does not end up becoming a consequence of the proposed CBD. It has been emphasized that holding money in the form of the proposed CBDC does not entitle the holder to any interest, and this addresses these risks to some extent.”
The Deputy Governor’s remarks also shed light on some of the key drivers behind the Indian CBD. The need to reduce physical currency levels to achieve better efficiency and reduce costs around national currency management, which has been known for a long time,” added Prasad.