In a déjà vu, Reserve Bank of India (RBI) governor Shaktikanta Das reiterated his concerns regarding cryptocurrencies terming them as a “huge threat to macroeconomic and financial stability” at a media interaction following the monetary policy announcement on February 10.
Das likened the frenzy around cryptocurrencies to Tulip mania— a speculative bubble witnessed in the Netherlands in the 17th century. It is generally considered to have been the first recorded speculative bubble in history. He implied that cryptos do not even carry the value that tulips carried at the height of Tulip mania.
The RBI governor’s comments are crucial in understanding what kind of a position RBI will adopt towards cryptocurrencies in consultations with the union government. They are an indicator that the regulation of cryptocurrencies will face significant challenges despite Finance Minister Nirmala Sitharaman ushering in a tax regime for virtual digital assets.
RBI’s update on its CBDC project
At the media interaction, Deputy Governor T Rabi Shankar said that the RBI will test the design and technological features of CBDC before introducing it. “The (2022-23) budget proposed amendments to the RBI Act to enable the issue of CBDCs so once that is done then we can look at pilots and proof of concept,” the deputy governor informed the media.
Shankar said that the bank was only working with agencies in its ecosystem, and no external agencies were being used. “We will ascertain our position based on needs. The technological choices are open and it will depend on use cases,” he added.
RBI Governor Das refused to provide a timeline, adding that the work is being done carefully. “It is one of the things that we do not want to rush as there are a lot of risks— cybersecurity and counterfeiting,” he said.
CBDC finds mention in Budget 2022-23
Digital Rupee using blockchain technology will be issued by the Reserve Bank of India (RBI) starting 2022-23, Finance Minister Nirmala Sitharaman said in her Budget 2022-23 speech in Parliament.
“Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system.” – Nirmala Sitharaman
The project can be viewed as an attempt by the government to take advantage of the benefits offered by blockchain technology and to also discourage the use of crypto like Bitcoin and Ethereum.
“Digital rupee will be just like physical rupee and will be issued by the RBI. It will be completely controlled and monitored. The development of the Global Digital Payment System will also be aided by this project,” Modi said while suggesting that problems in printing cash, its handling and distribution will be addressed by CBDCs.
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