Until two years ago the RBI, like most central banks, was in a wait-and-watch mode with respect to central bank digital currency (CBDC), but things changed with the advent of stablecoins.
Dollarisation in economics refers to the domination of the US currency in the internal economy of a country or the alignment of a country's currency with the US
Rabi Sankar said that earlier the thinking was that there was nothing much a CDC could achieve that digital money could not. However, now there was no question of whether to go for digital currency, but on how to go about implementing it. The deputy governor was speaking at a webinar on CBDC organised by ICRIER. Highlighting the issues around the introduction of CBDC, Rabi Sankar that the most significant advantage that it could provide was in financial payments. “The current model of correspondent banking gives scope for improvement in cost and time efficiency. This requires that CBDCs are available not just in one country but in others as well and there must be CBDC systems that talk to one another. Whether that happens through bilateral arrangements — only time will tell,” said Rabi Sankar.
He said that with digital currencies, rupee and dollar transactions can take place in the middle of the night. Incidentally, most of the correspondent banks are Western multinationals that play a major role in implementing sanctions. "Stablecoins are a much bigger threat in terms of dollarisationc than in terms of crypto being used for small value or other transactions. Tesla initially said it will accept crypto but withdrew. One of the reasons is extreme volatile," said Rabi Sankar.