Digital currencies may increase financial transparency but pose risk of disintermediation of banking system: RBI

The RBI observed that CBDC can be designed to endorse financial inclusion by direct benefit transfer, endorse non-anonymity at a personal level and regulate transactions. Adding more, the RBI added that CBDC can help pump central bank ‘helicopter money’.

February 28, 2021 / 03:38 PM IST

The Central Bank Digital Currency (CBDC) is ‘not an unmixed

blessing’, said the Reserve Bank of India (RBI) in its latest report on currency and finance. As per the RBI, the virtual tokens increase financial inclusion and transparency but may take away low-costs deposits from banks with impacts on the economy. However, it poses a risk of disintermediation of the banking system, the report says.

Stating the benefits of CBDC, the RBI observed that it could be designed to endorse financial inclusion by direct benefit transfer, endorse non-anonymity at a personal level and regulate transactions. Adding more, the RBI added that CBDC could help pump central bank ‘helicopter money’.

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The RBI also stated that CBDC could be beneficial in directing public consumption to a select segment of goods and services to augment social welfare and cumulative demand.

CBDC may also play a vital role as an instrument of sterilisation in emerging markets which are going through large-scale capital inflows, and argument the economy’s response to alterations in the policy rate, said RBI report. The regulator noted digital currency would help it alleviate the restraint that limited stock of government securities in the balance sheet.

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Pointing at the disadvantages of the CBDC, the RBI report observed that the interest-bearing digital fiat may pose a risk of disintermediation of the banking system, considering the commercial banking system is thought to be flimsy. The RBI fears that people may convert their CASA (current account savings account) deposits with banks into CBDC.

Following this, the cost of bank-based financial inter-mediation would be raised, affecting the growth and financial stability. Also, chances of banks in countries with large credit markets lose their primacy may also rise.

The new report on 'Currency and Finance 2020-21' was released a day after the RBI Governor Shaktikanta Das had stated that the central bank was all set to issue major regulations on CBDC soon.
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