Take a cautious approach in launching a digital currency, says report

business-standard.com:

India should take a cautious and gradual approach towards launching a central bank digital currency (CBDC) as developing it could have some hazards, including those to institutions, end-users of retail CBDCs, and the reputation of the central bank, says a National Council of Applied Economic Research (NCAER) working paper.

The paper has been co-authored by Poonam Gupta, director general of NCAER and part-time member of the Economic Advisory Council to the Prime Minister.

“We argue that many of these arguments for CBDCs have been advanced uncritically. Their proponents fail to acknowledge that some of these goals can be advanced at lower cost and at less risk through alternative means,” the report stated.

The paper said that while a CBDC would have more penetration compared to credit or debit cards, the reach of Unified Payments Interface is already widespread. “In its history to date, UPI has hosted some 70 billion transactions, some as small as one rupee, making it the world’s largest real-time payment system by transactions,” it said.

The paper said that while greater financial inclusion is also one of the reasons behind pushing CBDC, it can also be achieved through simply opening more bank branches in rural areas and providing services through non-bank partners and agents.

“A third rationale sometimes heard for CBDC issuance is to enable the central bank and the government to retain control of the payments system in the face of stablecoins and other private payment rails. If the concern is the concentration of payments in a single or small set of private hands, then the obvious solution is to strengthen regulation of those private providers,” it said.

“In view of the range of questions still to be answered, India