In discussion with the IMF International Monetary Fund, T Rabi Sankar, the deputy governor of India’s Reserve Bank, reflected an anti-crypto stance as he discussed the country’s potential to disrupt the crypto and blockchain industry.
Rabi Sankar began the discussion by stressing the success of India’s in-house fiat-based peer-to-peer payment network, the Unified Payments Interface (UPI), which has witnessed an average adoption and transaction rise of 160% per annum over the last five years.
When comparing UPI’s rise to blockchain technology, he noted, “One of the reasons it’s so popular is because it is simple.”
Rabi Sankar said, “Blockchain, which was established six and a half years before UPI, is still being hailed as a truly transformative technology today. Blockchain use cases have not yet begun at the originally anticipated rate.”
However, because of the absence of smartphones, a substantial portion of India’s population still lacks accessibility to UPI-based banking, according to the RBI official. The Indian government is developing offline payment mechanisms to combat this, some of which are already available to the general public.
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Rabi Sankar also noted that banks would continue to be important in India for offering liquidity services to the ordinary public, cautioning that technology is only a tool that can be leveraged to create currency.
“Either a currency must have an issuer or intrinsic worth. Even though many cryptocurrencies are neither, they are accepted at face value. Not only by unsuspecting investors, but also by specialists, policymakers, and academics,” said Sankar.
He also indicated that the Reserve Bank of India does not consider that stablecoins such as Tether (USDT) should be accepted as 1-to-1 fiat pegged currencies.
When asked about the benefits of a digital rupee, Rabi Sankar said, “we believe that central bank digital currencies (CBDCs) have the potential to eliminate any small argument for private cryptocurrencies.”
The Reserve Bank of India (RBI) suggested a three-step graded strategy to implement CBDC “with little or no interruption” to the conventional financial system on 28th May.
The Indian finance minister Nirmala Sitharaman first stated the idea to establish a CBDC in 2022-23 to give the digital economy a “huge boost.” According to the RBI study, the central bank is actively experimenting with establishing a CBDC that addresses various challenges inside the existing system.
The RBI is currently looking into the many design elements of a CBDC that can coexist with the current fiat system without causing disruptions. The Indian Finance Bill 2022, which mandated a 30% crypto tax on unrealized gains, also establishes the legislative foundation for establishing a digital rupee.
Due to decreased expenses and the instant nature of a digital offering, this digital currency would be connected to fiat reserves at a 1:1 ratio, offering citizens a cheaper and more reliable way to handle their cash. A CBDC would ideally give the benefits of cryptocurrencies, such as banking the unbanked and instant transactions, while avoiding the negatives of cryptocurrencies, such as potential volatility.
We will have to wait for a broader rollout of CBDC in India to see how it could be the gamechanger in our current financial ways.