The Reserve bank of India (RBI) sees central bank digital currencies (CBDCs) as an exact replica of fiat-backed paper currency, and such currency will not be interest-bearing, deputy governor T Rabi Sankar said on Thursday. The ramifications of CBDCs for the business model of banks, monetary policy and privacy will need to be watched, he said.
Speaking at a webinar organised by the Indian Council for Research on International Economic Relations (Icrier), Sankar said there are two ways in which central banks are looking at CBDCs. One is that it’s an exact digital version of the sovereign or the fiat currency. “This is the way we look at it. The CBDC would be one-to-one convertible with the sovereign currency. Things like whether it should pay interest are clearly not there because currency as such does not pay interest,” Sankar said.
There is another way of looking at it – that the CBDC is a variant of a central bank liability. In that sense, it’s a variant of a currency. Under this way of looking at CBDC, issues like whether CBDCs will be paying interest can crop up. According to Sankar, this will enable central banks in advanced economies to deal with one of the shortcomings they had, which was that they had no instrument which could pay negative interest.
Speaking at the same event, chief economic adviser V Anantha Nageswaran highlighted that even the launch of the CBDC by the RBI would not obviate the need for regulating cryptocurrencies, as they will continue to exist. Currently, cryptocurrencies remain unregulated, although, in the latest Budget, finance minister Nirmala Sitharaman has proposed to tax gains on the sale of private crypto assets at a flat rate of 30%, without any deduction or exemption. The taxation, however, isn’t going to “going to legalise it or ban it at this stage” until a decision is taken after wide consultations, she has clarified.
