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RBI Official: Central Bank Digital Currencies Could Kill Cryptocurrencies

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RBI Official: Central Bank Digital Currencies Could Kill Cryptocurrencies

Reserve Bank of India (RBI) Deputy Governor T. Rabi Sankar says central bank digital currencies could “kill whatever little case there could be” for cryptocurrencies, like bitcoin and ether.

RBI’s Deputy Governor Discusses Impact of CBDCs on Cryptocurrencies

RBI Deputy Governor T. Rabi Sankar talked about the potential impact of central bank digital currencies (CBDCs) on cryptocurrencies, like bitcoin and ether, at a webinar organized by the International Monetary Fund (IMF), local media reported Friday.

He was quoted as saying:

We (RBI) believe that CBDCs would actually be able to kill whatever little case there could be for private cryptocurrencies.

By “private cryptocurrencies,” the Indian government and the central bank refer to all non-government-issued cryptocurrencies, including bitcoin and ether.

Sankar explained the central bank’s stance that cryptocurrencies should not be permitted “just because they are backed by hi-tech.” He added:

Any tool that can be used for good can also be put to undesirable uses. Technology, at the end of the day, is a tool.

Meanwhile, the Indian government is still working on the country’s crypto policy. This week the economic affairs secretary revealed that the government is finalizing a consultation paper on cryptocurrencies.

The RBI has long warned about cryptocurrencies being a threat to India’s financial system and should never be recognized as legal tender like some countries, including El Salvador, have done. The bank also warned that crypto could lead to the dollarization of the Indian economy.

Sankar detailed: “A currency needs an issuer or it needs intrinsic value. Many cryptocurrencies which have neither are still being accepted at face value – not just by gullible investors but also by expert policymakers and academicians.” The official elaborated:

Most cryptocurrencies have an equilibrium value of exactly zero, but they are still priced sometimes at fantastical levels.

“But even where cryptocurrencies do have value, for example, some stablecoins that are pegged to a particular currency, their unquestioned acceptance seems puzzling to me,” he opined.

The Indian central bank is currently developing its own CBDC. The bank said this week that it will take a “graded approach” to launching the digital rupee.

Do you think central bank digital currencies could kill cryptocurrencies like bitcoin? Let us know in the comments section below.

India’s Central Bank RBI to Adopt a ‘Graded Approach’ to Digital Currency Launch

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India's Central Bank RBI to Adopt a 'Graded Approach' to Launching Digital Currency

India’s central bank, the Reserve Bank of India (RBI), has proposed to adopt a “graded approach” to launching the country’s central bank digital currency (CBDC). The RBI also said it is exploring the pros and cons of introducing a digital rupee in India.

RBI on the Upcoming Digital Rupee Launch

The Reserve Bank of India released its annual report for 2021-22 Friday. India’s central bank digital currency (CBDC) is among the many topics discussed in the report.

“The design of CBDC needs to be in conformity monetary policy, financial stability and efficient operations of currency and payment systems,” the report details, elaborating:

The Reserve Bank proposes to adopt a graded approach to introduction of CBDC, going step by step through stages of proof of concept, pilots and the launch.

In addition, the report reveals that the central bank “has been exploring the pros and cons of [the] introduction of CBDC in India.”

The RBI further detailed that “the appropriate design elements of CBDCs that could be implemented with little, or no disruption are under examination.”

India’s Finance Minister Nirmala Sitharaman announced the central bank’s plan to launch a digital currency in February while presenting the Union Budget 2022-23.

The RBI report concludes:

An appropriate amendment to the RBI Act, 1934 has been included in the Finance Bill, 2022. The Finance Bill, 2022 has been enacted, providing a legal framework for the launch of CBDC.

In April, RBI Deputy Governor T. Rabi Sankar said central banks would go about launching a CBDC “in a very calibrated, graduated manner, assessing impact all along the line.”

Meanwhile, the RBI has maintained an anti-crypto stance. Governor Shaktikanta Das warned last week about investing in the crypto market after the collapse of cryptocurrency terra (LUNA) and stablecoin terrausd (UST).

In February, the central bank said that cryptocurrency is a big threat to India’s macroeconomic and financial stability. The bank’s deputy governor also stated that banning cryptocurrency is “most advisable” for India and that regulation is “futile.”

Nonetheless, the Indian government has not decided on the country’s crypto policy but crypto income is currently taxed at 30%. Moreover, a 1% tax deducted at source (TDS) will soon go into effect in India.

What do you think about how the RBI plans to launch its digital currency? Let us know in the comments section below.

Crypto Exchange Coinbase Halts Service in India Due to ‘Informal Pressure’ From Central Bank RBI

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Crypto Exchange Coinbase Halts Indian Operation Due to 'Informal Pressure' From the Reserve Bank of India, Says CEO

The Nasdaq-listed cryptocurrency exchange Coinbase has revealed that it halted operation in India a few days after launch due to “informal pressure” from the country’s central bank, the Reserve Bank of India (RBI), says CEO Brian Armstrong.

Coinbase Shares Experience in India

Coinbase Global provided an update on its Indian operation during the company’s earnings call Tuesday, particularly why it exited the Indian crypto market a few days after launch.

Anil Gupta, vice president of Investors Relations at Coinbase, asked CEO Brian Armstrong: “Some shareholders are curious about the recent developments in India. Can you explain the halting of UPI [Unified Payments Interface] transfers there? And what impact will that have on your expansion plans in the market?”

Coinbase launched in India on April 7. Armstrong went to India for the launch. The company said at the time that users could use the UPI system to buy cryptocurrencies on the platform. However, the company disabled the UPI option a few days later.

“There’s a lot of interest in crypto amongst the people there in India. So we had an integration with what’s called UPI. And this was a great example of just our international strategy,” Armstrong said during the earnings call. He elaborated:

A few days after launching, we ended up disabling UPI because of some informal pressure from the Reserve Bank of India, which is kind of the Treasury equivalent there.

“And India is a unique market, in the sense that the supreme court has ruled that they can’t ban crypto, but there are elements in the government there, including at Reserve Bank of India, who don’t seem to be as positive on it,” the Coinbase boss opined.

Armstrong noted that what the RBI is doing has been described as a “shadow ban” by the media. “Basically, they’re applying soft pressure behind the scenes to try to disable some of these payments, which might be going through UPI,” he detailed.

The Coinbase executive further said: “I guess we have a concern that they may be actually in violation of the supreme court ruling, which would be interesting to find out if it were to go there.”

He continued: “But I think our preference is really just to work with them and focus on relaunching. I think there’s a number of paths that we have to relaunch with other payment methods there. And that’s the default path going forward. Armstrong concluded:

My hope is that we will be live back in India in relatively short order, along with a number of other countries, where we’re pursuing international expansion similarly.

What do you think about Coinbase’s experience in India? Let us know in the comments section below.

India’s Central Bank RBI Says Crypto Is Prone to Fraud and Poses Immediate Risks to Consumer Protection

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India's Central Bank RBI Says Crypto Is Prone to Fraud and Poses Immediate Risk to Consumer Protection

India’s central bank, the Reserve Bank of India (RBI), has warned about multiple risks cryptocurrency poses to the country’s financial stability. “They are also prone to frauds and to extreme price volatility,” the apex bank claims, stressing that “cryptocurrencies pose immediate risks to customer protection and anti-money laundering (AML) / combating the financing of terrorism (CFT).”

RBI’s Assessment of Cryptocurrency

India’s central bank, the Reserve Bank of India (RBI), published its biannual Financial Stability Report (FSR) last week. The 144-page document includes a section on “private cryptocurrency risks.” The term “private” refers to all cryptocurrencies that are not issued by the RBI, including bitcoin and ether.

The central bank wrote:

The proliferation of private cryptocurrencies across the globe has sensitized regulators and governments to the associated risks.

“Private cryptocurrencies pose immediate risks to customer protection and anti-money laundering (AML) / combating the financing of terrorism (CFT),” the RBI stressed.

In addition, the central bank noted: “They are also prone to fraud and to extreme price volatility, given their highly speculative nature. Longer-term concerns relate to capital flow management, financial and macroeconomic stability, monetary policy transmission, and currency substitution.”

The report also references the finding of the Financial Action Task Force (FATF) which states that “the virtual asset ecosystem has seen the rise of anonymity-enhanced cryptocurrencies (AECs), mixers and tumblers, decentralized platforms and exchanges, privacy wallets, and other types of products and services that enable or allow for reduced transparency and increased obfuscation of financial flows.” The RBI emphasized:

New illicit financing typologies continue to emerge, including the increasing use of virtual-to-virtual layering schemes that attempt to further muddy transactions in a comparatively easy, cheap and anonymous manner.

Noting that the market capitalization of the top 100 cryptocurrencies has reached $2.8 trillion, the RBI warned that “In the EMEs [emerging market economies] that are subject to capital controls, free accessibility of crypto assets to residents can undermine their capital regulation framework.”

The report also addresses decentralized finance (defi), which “has recently been flagged by the Bank of International Settlements (BIS) as carrying the danger of concentration of power,” the Indian central bank pointed out, adding:

The rapid growth of decentralized finance (defi) is geared predominantly towards speculation and investing and arbitrage in crypto assets, rather than towards the real economy.

The RBI added that the limitation of AML and know-your-customer (KYC) provisions, “together with transaction anonymity, exposes defi to illegal activities and market manipulation and poses financial stability concerns.”

The Indian central bank has repeatedly said it has major and serious concerns about cryptocurrency. In its recent meeting of the central board of directors, the RBI called on the government to completely ban cryptocurrency, stating that a partial ban will not work.

Meanwhile, the Indian government has delayed introducing a cryptocurrency bill. A bill was listed to be considered in the winter session of parliament but it was not taken up. The government is now reportedly reworking the bill.

What do you think about India’s central bank’s warning about cryptocurrency? Let us know in the comments section below.

India’s Central Bank RBI Discusses Digital Currency and CBDC Launch With Minimal Impact on Monetary Policy

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India's Central Bank RBI Discusses Digital Currency and CBDC Launch With Minimal Impact on Monetary Policy

India’s central bank, the Reserve Bank of India (RBI), says a basic central bank digital currency (CBDC) model must be adopted initially and tested comprehensively to minimize the impact on the country’s monetary policy and banking system. The Indian apex bank sees several benefits in launching a digital rupee, including “a potential to enhance the efficiency of cross-border payments.”

RBI Outlines Benefits of Issuing Digital Currency and How to Launch a CBDC With Minimal Impact

The Reserve Bank of India (RBI) released its “Report on Trend and Progress of Banking in India 2020-21” Tuesday. The 248-page report has a section on central bank digital currency.

“In its basic form, a central bank digital currency (CBDC) provides a safe, robust, and convenient alternative to physical cash,” the Indian central bank described, adding that “Depending on various design choices, it can also assume the complex form of a financial instrument.” The RBI continued:

In comparison with existing forms of money, it can offer benefits to users in terms of liquidity, scalability, acceptance, ease of transactions with anonymity and faster settlement.

The Indian central bank noted that there are “crucial questions” about the design of a central bank digital currency that must be answered before introducing it. For example, one issue is “whether the CBDC would be general purpose and available for retail use (CBDC-R), or would it be for wholesale use (CBDC-W).”

The RBI stressed that “in a country like India, the decision about distribution architecture, i.e., whether CBDC would be issued directly by the central bank or through commercial banks, needs to be carefully weighed.”

Noting that gauging the magnitude of issuance and distribution will help identify “the appropriate underlying technology best suited to handle such operations,” the apex bank detailed:

Given its dynamic impact on macroeconomic policy making, it is necessary to adopt basic models initially, and test comprehensively so that they have minimal impact on monetary policy and the banking system.

In discussing the role of a central bank digital currency in cross-border transactions, the RBI stated that “Introduction of the CBDC has a potential to enhance the efficiency of cross-border payments and may provide an alternative to correspondent banks, going forward.” The report elaborates:

India’s progress in payment systems will provide a useful backbone to make a state-of-the-art CBDC available to its citizens and financial institutions.

Meanwhile, RBI Governor Shaktikanta Das has repeatedly said that the central bank has serious and major concerns regarding cryptocurrency. At its recent meeting of the central board of directors, the RBI called on the Indian government to impose a complete ban on cryptocurrency, stating that a partial ban will not work. Nonetheless, the government is reportedly planning to regulate crypto assets with the Securities and Exchange Board of India (SEBI) as the main regulator.

What do you think about the RBI’s comments on CBDC? Let us know in the comments section below.