What a digital currency from RBI must get right2 min read . Updated: 26 Jul 2021, 06:37 AM IST
A trial CBDC would need to assess the impact of its launch on financial intermediation, how well it assures users privacy, and our economic exposure to its effect on cross-border flows
Central banks, bar the odd occasion, are seldom known for competing among themselves. The default mode over the past few decades has been to coordinate actions, given the global economy’s inter-connectedness and border-defying financial flows. The odd occasion, though, has been the US Federal Reserve’s breach of this multilateral compact that led to the ‘taper tantrum’ of 2013. And now, in an attempt to keep up with the relentless march of technology and to ward off interlopers from muscling into central bank territory, many of the world’s central banks are racing to launch their own virtual currencies, or central bank digital currencies (CBDCs). Even the Reserve Bank of India (RBI) “…is currently working towards a phased implementation strategy and examining use cases which could be implemented with little or no disruption," according to a recent speech by its deputy governor T. Rabi Sankar. There are many reasons behind this rush to create CBDCs, but a compelling factor is the heightened risk from frenzied trading in cryptocurrencies, which could sow the seeds of future instability.