Reserve Bank of India has taken measures to curb cryptocurrency-rupee trade, and has set up a panel to explore having its own digital currency. Shaikh Zoaib Saleem spoke to experts on what this means.
Sujatha Mohan, head, digital and new initiatives, RBL Bank
Digital currency can lead to less cash
It is a step in the right direction. When we are talking of digital currency and not cryptocurrency, it already existed in the form of digital wallets. It was more like an account of sorts. It was not mined but loaded. But we have struggled to have a less-cash economy. We have struggled to reduce the quantum of cash despite demonetisation and thrust on digital payments. As a directional force, this digital currency could help ensure that.
On the implementation side, the concern that I feel, based on my experiences of trying to get products adopted in the market, is that there is still the feeling of pride in holding a wad of notes. A virtual currency does not give that feeling.
For me using a card is very natural. In several tier II and III cities, Aadhaar-enabled payments are working well. So the digital currency will need to be executed in a way that it becomes natural for people to use and it has to become a part of day-to-day transactions.
It can be different only if it brings a more structured way of holding money. The experience on the front end will have to be seen. We do not have details at this point.
Praveen Kumar, chairman and CEO, Belfrics Global SDH
RBI-backed crypto is a premature step
Issuing a central bank-backed cryptocurrency at this point will be premature. The market is not ripe enough for central banks to experiment with their national currencies. Both regulators and the governments are still clueless about how to effectively regulate the existing cryptocurrency market. At a point in time where you advise financial institutions to stay away from cryptocurrency service providers, going ahead and issuing your own cryptocurrency will not go well.
The RBI needs to have a wait-and-watch approach to see how the current market dynamics work with public blockchains. Along with tremendous benefits of the blockchain technology, a lot of fundamental risk is also involved when national currencies are involved.
At a time of panic, the nation-backed cryptocurrency could face a “crypto run" from private and national banks. Cross-border panic could also be a serious issue.
What is needed now is to find an effective way to regulate the existing cryptocurrency market and to prepare for future issuance of a national cryptocurrency as and when the market matures.
Saugata Bhattacharya, chief economist, Axis Bank
It poses stability, safety challenges
Central bank digital currency (based on blockchain and other distributed ledgers) could give regulators direct, instant access to information of banks, replacing regulatory reporting by having regulators participating in the ledger (with secured permission-based systems). It may also give small enterprises greater access to banking services.
Central banks will face various challenges related to stability and safety. Cyber security risks are becoming clear as is volatility in virtual currencies. The logistics of maintaining a central bank digital currency is daunting. And there are long-term implications. Such currency would combine the safety of bank notes with the convenience of a bank account. Depositors buying currencies directly from central banks would deprive banks of deposit funds, requiring them to pay higher rates to depositors, affecting the profitability of banks and their ability to lend. Indeed, the architecture of the banking sector itself could change.
Cross-border transfers and the need for correspondent banks will disappear.
The views expressed are personal.
Shantanu Sengupta, head of consumer banking,DBS Bank India
Future of banking transactions
Digital currency may well be the future of banking transactions and the recent discussions seem to be a step in that direction. The central bank has formed an internal committee to evaluate the benefits of creating a national digital currency and crowding out private currencies like Bitcoin, which may be open to misuse.
From an end-use perspective, cryptocurrencies have in recent times devolved into becoming speculative commodities, thanks to the Bitcoin experience. What is needed is a digital currency that leverages the security of blockchain, and fulfils the desired triple objective of being a unit of account, a store of value and a medium of exchange.
Blockchain technology may finally form the core of digital currency transactions. The advantages may be faster and accurate transaction processing, greater efficiency and transparency, financial inclusion, besides huge saving on printing and circulation.
We see this as an exciting development and the committee recommendations may invite further discussions and suggestions around effectiveness and implementation.