T. Rabi Sankar, the deputy governor of the Reserve Bank of India (RBI), has stated that 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 Payments Interface (UPI) and Aadhar, are already seeing massive adoption despite challenges. The deputy governor highlighted the UPI system, noting that its simplicity has been at the center of its success. The platform, a fiat-based peer-to-peer payments system, has seen an average transaction growth of 160% per annum over the last five years and was especially accelerated by the 2020 lockdown.
In contrast, he noted that blockchain technology and digital assets have failed to see the same level of adoption growth.
“Blockchain, which was introduced six-eight years before UPI started, even today is being referred to as a potentially revolutionary technology. [Blockchain] use cases haven’t really been established that much at the speed it initially was hoped for,” he said.
This slow adoption has been due to several shortcomings of digital currencies, the deputy said. Some of these are the lack of an issuer and intrinsic value. Based on these, Sankar thinks CBDCs will replace even the little use case that digital assets have.
“We believe that central bank digital currencies (CBDCs) could actually be able to kill whatever little case that could 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 published its annual report, where it proposed to adopt a three-phased approach to a CBDC rollout. The central bank even named the development of the CBDC one of its major initiatives for 2022-23.
Meanwhile, India’s central bank’s stance on digital assets has long been adversarial. Last month, RBI Governor Shaktikanta Das reiterated that digital currencies have no underlying value and hence need to be regulated carefully for the stability of the economy.
The outlook on digital assets and CBDCs is one thing India shares with the IMF. The IMF has also long warned nation-states of the dangers of digital currency adoption. The organization has told El Salvador and the Central Africa Republic that their adoption of Bitcoin as legal tender is concerning.
Similarly, the IMF told Argentina to discourage digital currency adoption as part of a bailout deal. The Financial Times notes that the IMF is strongly behind the globalization of CBDCs.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
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