India’s Digital Currency to Take ‘Very Calibrated, Graduated’ Approach, Says RBI Deputy Governor – Regulation Bitcoin News

T. Rabi Sankar, Deputy Governor of Reserve Bank of India (RBI), has described the consequences of India’s issuance of a digital currency by the central bank. ”I think central banks would go about it in a very calibrated, graduated manner, assessing impact all along the line,” he explained.

RBI’s Deputy Governor Discusses Indian Central Bank Digital Currency

RBI Deputy Governor T. Rabi Sankar talked about the country’s central bank digital currency (CBDC) Thursday at an event organized by the Indian Council for Research on International Economic Relations (ICRIER). He also outlined potential implications on India’s financial system and monetary policy, PTI reported.

Finance Minister Nirmala Sitharaman stated that this year’s central bank digital currency will be issued by the RBI. Prime Minister Narendra Modi described that the digital rupee will be the digital form of India’s physical rupee and will be regulated by the RBI. “The digital rupee will revolutionize the fintech sector,” he said.

Commenting on different CBDC models, Deputy Governor Sankar pointed out that there are many “uncertainties in terms of which model works, which design works well in terms of its impact on the banking system, on data privacy, on monetary policy.” He opined:

Most central banks, including ours, I believe will go into a careful and carefully calibrated manner.

Emphasizing that central banks should “do no harm” when introducing any new technologies, he said: ”I think central banks would go about it in a very calibrated, graduated manner, assessing impact all along the line and then making those connections with what is most demanded.”

He then highlighted some of the benefits that digital currencies offer, such as cost efficiency, distribution efficiency, and settlement efficiency. The digital rupee will reduce cross-border transaction times and allow for real-time transactions.

Discussing how central bank digital currencies could affect India’s financial system, he cautioned, “one must realize that global experience is virtually non-existent at this point in time on a few things like [how] CBDCs might affect the banking system.”

Sankar, Deputy Governor explained that CBDCs may affect Indian banks’ transaction demand. He detailed that if that happens, “the deposit creation would get affected negatively and to that extent the ability to create credit by the banking system also goes down.” He added:

As low-cost transactions are withdrawn from banks, deposits may see an average increase in cost, which could lead to slight increases in funds prices.

V. Anantha Nageswaran was the chief economic advisor of the Indian government and stated that the creation of a CBDC would not eliminate the need for regulation in India regarding cryptocurrencies. They will still exist.

Stablecoins were also mentioned by the RBI deputy governor, who warned that they might pose a greater threat to dollarization then cryptocurrencies. Due to their extreme volatility, they are not suitable for use in small transactions.

Indian officials are currently developing a framework to allow cryptocurrency. According to reports, officials from the Finance Ministry are currently consulting international organisations on this matter including the International Monetary Fund and the World Bank.

In the meantime, income from cryptocurrency is being taxed at 30% with no loss offsets and deductions. A 1% tax will be added to crypto transactions on July 1 (TDS).

What do you think about RBI Deputy Governor Sankar’s comments? Please leave your comments below.

Kevin Helms

Kevin is a graduate of Austrian Economics. He discovered Bitcoin in 2011, and has been an advocate ever since. He is interested in Bitcoin security and open-source software, network effects, and the intersection of cryptography and economics.