Central Banks Driven By Fear, Opportunity On Digital Currencies, Says D Subbarao

Central banks, especially in emerging economies like India, are driven by fear and opportunity as they look at issuing their own digital currencies, said D Subbarao, former governor of the Reserve Bank of India.

The fear, according to Subbarao, is that private cryptocurrencies will displace fiat money issued by central banks.

“Central banks like RBI are concerned that when cryptocurrencies like stablecoins gain dominance, their monetary policy will lose traction,” he said at the NSE NYU Conference on Indian financial markets on Wednesday.

While stablecoins pose risks to the relevance of fiat currencies, private coins such as Bitcoin are unlikely to ever reach that stage, he said.

Another area of concern over cryptocurrencies such as stablecoin is that people are increasingly becoming dependent on private payment systems, Subbarao said.

"...these private payment systems are vulnerable to hacking and outage. And if that happens central banks are concerned that the integrity of their domestic currency will be impaired," he said while explaining the increased focus on central bank digital currencies.

However, central bank digital currencies could help bring down transfer cost, prevention of counterfeiting of currency, reduction of cost of printing and distributing currency, Subbarao explained.

Meanwhile speaking to reporters after the monetary policy announcement on Wednesday, RBI Governor Shaktikanta Das said that cybersecurity and digital frauds are among top concerns facing the regulator as it works on a digital currency proposal.

India's own central bank digital currency is work in progress as the RBI has completed most of the work on the wholesale component of such a currency. T Rabi Sankar, the central bank's deputy governor, said on Wednesday that the retail component was a little more complicated and would take time.

“The impact of a digital currency, which is the equivalent of paper currency, on consumer behaviour, the banking sector and currency in circulation will also need to be watched," Rabi Sankar said.