RBI DG offers a sneak peek at India’s tryst with digital currency

India is now among the 75 plus countries who are mulling launching their own digital currency. The digital rupee can be used to spur demand in rural areas helping in economic growth. The RBI will have to monitor the digital rupee carefully to ensure it doesn’t spike inflation.

RBI DG offers a sneak peek at India’s tryst with digital currency
The digital ₹

RESERVE Bank of India deputy governor, T Rabi Sankar, has offered a sneak peek at what is at work as far as India’s digital currency is concerned.

Rabi Sankar who was appointed as the RBI deputy governor in May this year has offered this preview for the first time.

Incidentally it was his immediate predecessor, BP Kanungo, who was very closely associated with the development of the digital currency thought process.

What’s on offer?

Speaking  at a webinar, Rabi Sankar highlighted three key points:

  • Work is underway on a phased implementation strategy
  • RBI could also look at a general-purpose central bank digital currency
  • There would be necessary legal changes that would be required before launching the digital currency

The third point is a crucial one as the RBI gets the right to print currency notes under provisions of Section 22 of the RBI Act, 1934.

The governor has dropped hints

This is the first time perhaps that a very senior functionary of India’s central bank has gone public indicating what is being planned.

RBI governor Shaktikanta Das has only managed to drop hints about the proposed India digital currency.

During the media briefing after a meeting of the RBI policy committee, governor Das had said that the proposed digital currency would facilitate direct benefit transfer (DBT) to the poorer sections of society.

The move, he observed, would help to revive the economy by boosting demand in rural India.

What will be the nature of the currency be?

DG T Ravi Sankar’s statement however hasn’t clarified whether the proposed Indian digital currency would be a stablecoin. In the world of cryptocurrency, a stable coin is a crypto currency which is tied to an underlying currency.

Most of the cryptocurrencies work on the principle of being a DeFi or Decentralised Financial instrument. This basically means that anyone and everyone can print or rather mine the currency.

A DeFi can undermine the currency issuance and management function, which is essentially bestowed on the central bank of a nation!

No bill

There have been murmurs that India could altogether ban trading or investing in private cryptocurrencies. A move on similar lines has already happened in the People’s Republic of China (PRC) which is gearing up to launch its version of a digital yuan.

There was even speculation that the proposed bill banning private cryptocurrency in India would be introduced in the ongoing monsoon session of the Parliament though that hasn’t happened.

In fact as the monetary regulator, the RBI is loath to recognising cryptocurrencies and this stance has been reiterated time and again.