Central Bank Digital Currencies (CBDC) could 'kill' the reasons for the existence of private cryptocurrencies, Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar has said.
"We (RBI) believe that CBDCs would actually be able to kill whatever little case there could be for private cryptocurrencies," Rabi Sankar said on June 2 at webinar organised by the International Monetary Fund (IMF).
In his speech, Rabi Sankar reiterated the RBI's view that private currencies should not be permitted "just because they are backed by hi-tech".
"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," Rabi Sankar said, adding that understanding the limitations of technology was crucial in managing how it was infused into the economy and society such that people did not fall "prey to the hype that technology can create a currency".
The central banker's latest salvo against private cryptocurrencies comes ahead of the release of the government's consultation paper on crypto.
While the Indian government has refused to make public its stance on crypto so far, the RBI has been adamant that private cryptocurrencies were a threat to the financial system and would never be legal tender.
"A currency needs an issuer or it needs intrinsic value. Many cryptocurrencies which have neither are still being accepted at face value – not just by gullible investors but also by expert policymakers and academicians," Rabi Sankar said.
"Most cryptocurrencies have an equilibrium value of exactly zero, but they are still priced sometimes at fantastical levels. But even where cryptocurrencies do have value, for example stablecoins that are pegged to a particular currency, their unquestioned acceptance seems puzzling to me."
In this context, Rabi Sankar called on the IMF to take a leading role in framing the narrative around digital payment systems.
"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."
The RBI is currently working on its own CBDC, with Rabi Sankar saying on April 8 the central bank was in a position to begin testing and running pilot projects for a digital rupee.
Commenting on the state of digital payments in India, Rabi Sankar said while frauds were growing and needed the RBI's attention, the situation was not yet alarming.
"For instance, 1 in 59,000 (digital) transactions was fraudulent in FY21. It has gone up to 1 in 30,000 in FY22. Roughly 75 paisa out of 1 lakh rupees (of digital transactions) in terms of value is fraudulent. It is not alarming, but it is something we need to plug right at this stage," Rabi Sankar said.