RBI: Digital central bank currencies are not an unclouded blessing

The Central Bank of India stated in a report that central bank digital currencies do not only have advantages.

While the Central Bank of India has highlighted the potential benefits of Central Bank Digital Currencies (CBDCs), it has pointed out some pitfalls.

The Reserve Bank of India (RBI) has its assessment of CBDCs in a report on Currency and Finance on Sunday issued

As part of the report, the RBI noted that several countries were working on their own sovereign national digital currency.

According to the central bank’s report, CBDCs can help promote financial inclusion and transactional transparency. The Bitcoin Lifestyle also stated that national digital currencies could serve as an instrument of monetary transmission. They would help direct public consumption towards certain categories of products and services.

In explaining the benefits of CBDCs, the RBI also noted that digital counterparts to state fiat currency could be used by central banks to distribute „helicopter money“.

In its analysis, the RBI also raised concerns about the potential negative impact of CBDCs on the existing financial system. It said:

„However, CBDCs are not an unadulterated blessing. They carry the risk of disintermediation of the banking system, especially if the commercial banking system is considered fragile.“

In countries with sizeable credit markets, CBDCs could, according to the RBI, contest commercial banks for their place as the primary channel for transmitting monetary policy

As Cointelegraph previously reported, India is trying to follow China’s lead in developing its CBDC. According to RBI governor Shaktikanta Das, the central bank is “ very good at “ developing a digital rupee.

However, the RBI report did not provide details about the central bank’s project on the digital rupee . While the central bank also admitted in the report that the internationalization of the rupee was inevitable, it added that such a move would make monetary policy more difficult to formulate and implement.

With multiple countries looking to develop their own sovereign digital currencies, CBDC interoperability is something that concerns everyone involved . Meanwhile, it was also reported that China’s digital yuan would tend to focus more domestically .