Reserve Bank of India Deputy Governor Tells IMF: CBDCs Can Kill Digital Currencies

T. Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), said his organization believes that Central Bank Digital Currencies (CBDCs) have the potential to kill private digital currencies.

According to Sankar, India’s state-run payment platforms including Unified Payment Interface (UPI) and Aadhar are already seeing massive adoption despite the challenges. The Deputy Governor highlighted the UPI system, noting that its simplicity has been central to its success. The platform, a fiat-based peer-to-peer payment system, has seen average transaction growth of 160% per year over the past five years and was particularly accelerated by the 2020 lockdown.

In contrast, he noted that blockchain technology and digital assets have not seen the same level of adoption growth.

“Blockchain, which was introduced six to eight years before the start of UPI, is still considered a potentially revolutionary technology today. [Blockchain] the use cases haven’t really been established at the speed that was originally hoped,” he said.

This slow adoption is due to several shortcomings of digital currencies, the MP said. Some of them are lack of issuer and intrinsic value. Based on this, Sankar believes that CBDCs will replace even the small use case of digital assets.

“We think central bank digital currencies (CBDCs) might actually be able to kill any small case that might be for private cryptocurrencies,” he added.

India and the IMF have similar views on digital currencies and CBDCs

Sankar’s view comes just after the RBI released its annual report, in which it proposed taking a three-phase approach to deploying a CBDC. The central bank has even named the development of the CBDC as one of its major initiatives for 2022-23.

Meanwhile, India’s central bank’s stance on digital assets has long been contradictory. Last month, RBI Governor Shaktikanta Das reiterated that digital currencies have no underlying value and therefore need to be carefully regulated for the stability of the economy.

The outlook on digital assets and CBDCs is something that India shares with the IMF. The IMF has also long warned nation states of the dangers of embracing digital currency. The organization has told El Salvador and the Central African Republic that their adoption of Bitcoin as legal tender is of concern.

Similarly, the IMF has asked Argentina to discourage the adoption of digital currency as part of a bailout deal. The Financial Times notes that the IMF strongly supports the globalization of CBDCs.

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