Allowing cryptocurrency may erode central bank control over money supply: former RBI Guv

Published: Updated on – 14:08, Thu – 9 December 21

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Kolkata: Former Reserve Bank of India Governor Duvvuri Subbarao has said that the central bank could lose control over money supply and inflation management if cryptocurrency is allowed in the country.

Speaking at a webinar hosted by the National Stock Exchange (NSE) and New York University (NYU) Stern School of Business, Rao also said that India’s case for issuing a central bank digital currency (CBDC) might not be sound because there are capital controls.

“Crypto is backed by algorithms and there are fears that the central bank is losing control over money supply and inflation management. There are also fears that crypto could disrupt monetary policy,” he said on Wednesday.

“Crypto can circumvent capital controls; fiat currency is tied to reserve currency,” he added.

Rao, who served as RBI governor from 2008 to 2013, said the CBDC also needed strong data protection laws.

According to him, cash is disappearing in India and digital payments are becoming popular.

However, Rao said, due to the pandemic, currency circulation has increased as people have been holding onto cash due to the lockdowns. “The role of the central bank as a lender of last resort must not be hindered.”

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