Views: How CBDC designed to tame cryptocurrencies might instead stir the pot

cnbctv18.com:

The announcement in the February 1, 2022, budget speech by Finance Minister Nirmala Sitharaman that the Reserve Bank of India (RBI) would soon launch digital rupee has set the nation agog both with anticipation and doubts. That Central Bank Digital Currency (CBDC) the world over has been a kneejerk response to the phenomenal rise of cryptocurrencies is undeniable.Yet there are a number of imponderables that cannot be glossed over in our obsession with novelty as well as the desire to be seen in the company of Joneses.

Let us see how the digital rupee would impact various stakeholders.RBIThe banking regulator and the lender of last resort, the RBI would ironically and oddly become a bank itself to the extent the digital rupee liability would figure on its balance sheet. And to the extent people convert their regular current account savings account (CASA) balances into digital rupee, the banking system in India would receive a rude jolt----their lendable deposits would come down sharply thus affecting their very raison d’ etre or bread and butter operations.This denouement would be so disrupting that the bottom-line could be ludicrous--- regulator elbowing out the players.Commercial banksThere could well be an existential crisis for commercial banks with flight of deposits spelling their relegation to irrelevance and in sooner than later to possible extinction.All digital payments like card, NEFT, IMPS and RTGS would come to a halt to the extent there is a shift of deposits to the digital rupee.