E-Rupee: RBI’s big out-of-the-box moment is still to come

Among the reasons that Modi nudged RBI to prepare for hard work in the decade ahead is an initiative to globalize the country’s currency.  (PTI)
Among the reasons that Modi nudged RBI to prepare for hard work in the decade ahead is an initiative to globalize the country’s currency. (PTI)


  • A sense of success among Indian policymakers is justified to a significant extent. Yet, RBI must resist premature exultation and work hard to reinforce its role as the rupee’s guardian. It’ll help with a CBDC too.

A heady air of mutual—and self— congratulation hovered over the Reserve Bank of India’s (RBI) 90th-year celebration held on 1 April. It was almost palpable in the speeches made. Governor Shaktikanta Das said that “well-calibrated and coordinated monetary and fiscal policies" between RBI and the Centre had “shielded the economy from shocks" like covid and two wars. The central bank’s chief expressed satisfaction that “today our GDP growth is robust, inflation is moderating, financial sector is stable, the external sector remains resilient and forex reserves are at an all-time high." He gave key reforms like the 2016 insolvency code and RBI’s legal mandate to tame retail prices due credit. Finance minister Nirmala Sitharaman lauded RBI’s pandemic package of credit and debt relief and hailed its role in the rupee’s external stability (in peer comparison) and an orderly yield curve for Indian bonds. Prime Minister Narendra Modi urged RBI to think out of the box on credit, calling Das an expert at it, noted RBI’s success in the context of reform enablers, and spoke of more to be done. The heady air at the venue was better deserved than what the optical demands of poll season may suggest. By any reckoning, India’s economy has emerged quite well from the covid blow four years ago, thanks to a decisive yet judiciously restrained mix of stimulus—fiscal and monetary both.

Yet, premature exultation is best resisted. While covid forced a breach of Indian rules not just on the fiscal deficit but also price stability, with RBI notching up an official target failure not long ago, the central bank still hasn’t shown success at holding prices steady over a span of time long enough for us to think of an internally stable rupee as a given, or a fact of life. Instead, it is not yet clear if RBI’s aim of 4% inflation has a chance of being met in 2024-25. Of course, as any easing of credit tends to excite markets, we can expect some rate-cut advocacy to arise if it stays safely within a 2-6% band. But at this juncture, macro variables offer no cogent case for cheaper loans. Real interest rates are not exorbitant, RBI’s stance is still focused on withdrawal—though it could soon go neutral—and the expansion of our economy does not need RBI’s aid, even if its exact drivers right now are not entirely clear. Add low clarity over how a neutral rate—that may balance investments and savings without the US dollar’s special privilege of trying out endless supply—might lately have changed, and an early rate cut is too much to expect. Also, since uncertainties persist, how RBI’s policy levers are best moved will get no easier to tell as a new fiscal year gets going.

Among the reasons that Modi nudged RBI to prepare for hard work in the decade ahead is an initiative to globalize the country’s currency. At a basic level, this calls for a show of both its internal and exchange-market stability. For the odds to favour the rupee’s leap into global use, two factors must lend support: How India globalizes and how soundly RBI’s digital rupee is crafted. If it’s designed to satisfy the world’s most privacy-fussy folks, who’d be watching RBI’s autonomy, it could earn trust overseas too. As a direct RBI liability, an e-rupee could even attract public deposits with just a modest interest payout. In turn, this technology platform could set the stage for a radical remake of banking, with RBI keeping our savings safe and lenders focusing on their core job of lending. Even if bankers balk at the idea, deeming it too disruptive, it would qualify as out of the box.

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