According to T Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), central bank digital currencies (CBDCs) could ‘kill’ so-called private cryptocurrencies or virtual digital assets (VDAs).
RBI openly offensive against cryptos
The central bank openly condemned cryptos ahead of the government’s consultation document on these digital assets. The industry, on the other hand, holds a different viewpoint.
“We expect that CBDCs will be able to eliminate whatever little justification there may be for private cryptocurrencies,” Sankar stated at an IMF seminar.
The Reserve Bank of India has been vehemently opposing cryptocurrencies such as Bitcoin, claiming that such instruments have no underlying value and are fundamentally speculative in nature. The government is yet to clear its opinion on them.
Crypto industry disagrees
Unlike most skeptics, Anshul Dhir, Co-Founder and COO of EasyFi Network thinks that CBDCs and cryptos will complement rather than compete.
CBDCs, according to Vikram Subburaj, CEO of Giottus, will not eliminate other cryptocurrencies, as this appears to be on the RBI’s wish list. “They are blind to the numerous advances taking place in the field.”
“A sovereign-backed blockchain-based payment system is unlikely to threaten cryptocurrencies in general,” he added. Cryptos such as Bitcoin and Ethereum are public , not private.
The Ministry of Finance’s Department of Economic Affairs announced earlier this week that a consultation document on private cryptocurrencies would be released soon.
Sankar said the ‘unquestioned acceptance’ of stable coins, which are connected to controlled currencies, is ‘puzzling’ at a time when proponents of cryptocurrencies have been arguing for them.
He emphasized the need to understand the difference between money and currency and the fact that the system is mostly based on private money.
CBDCs, according to market participants, can be a good and genuine replacement for this type of cryptocurrency if done properly. Being tied to a certain fiat currency presents its own set of issues for stablecoins.
“In the crypto ecosystem, stablecoins help with capital inflows and transaction ease,” said Subburaj. “They are merely a small part of the blockchain’s utility.”
According to Dhir, central banks are always interested in working on a sovereign-issued digital currency that can work alongside other foreign reserve stablecoins and CBDCs.
Given the fast changes in technology, Sankar also urged the IMF to take the lead in framing the narratives around digital payment systems.
A few market participants believe the RBI is overly cautious regarding crypto assets. They claim that some of their concerns about cryptocurrency volatility and its threat to many small investors are legitimate.
“In any honest opinion about new technologies, we encourage both pro and con arguments, with crucial decisions being made after evaluating the benefits and drawbacks,” Giottus’ Subburaj stated. “We would urge the RBI to talk about the benefits of this technology as well as the drawbacks,” said the group.
Continuous interactions with stakeholders and industry leaders help reduce concerns, according to Dhir of Easyfi. “The Reserve Bank of India (RBI) must develop policies that encourage innovation and growth.”
The case of government regulators opposing cryptos is bolstered by some recent actions in the crypto market. UST, a supposedly stablecoin, lost its full value and billions of dollars of people’s money went up in smoke. The CBDCs’ effectiveness can only be known once we have their white paper in hand.